Is information too accessible?
In light of recent volatility, some of the highest ever, I began thinking of our societyâs reaction to this credit crisis. I started to question whether or not this credit fiasco is really as bad as everyone seems to think. My opinions came from the changes weâve experienced as a society over the last 20 years. I began thinking about how much information we are exposed to today compared to even 10 years ago. Satellite TV with dozens of news channels, satellite radio, and the numerous blogs on the internet. These mediums seem to have a collective âmindâ wherein everyday, the same news stories are repeated, analyzed and repeated over and over. With so much access how does one avoid listening? Its nearly impossible unless you live somewhere completely isolated.
So suppose we have this collective mind as a society that is currently being bombarded with our governmentâs decisions, the bank failures, the perma-bears and bulls, conference calls, the Jim Cramers of the world, and so on and so on. Not to mention the uncertainty inherent with a new administration. I sometimes doubt whether there is actually anyone currently not aware of these âdireâ economic conditions, again, unless they live in complete isolation.
So, what is the result of this collective information processing?
For one, it is like a positive/negative feedback loop⦠society gets more and more anxious and more afraid, even though there may not really be significant reasons to be SO afraid and SO panicky with investing, lending and spending. Think about how rumors spread, it is human nature to embellish and exaggerate. Sometimes I think of the internet and media as one giant game of âTelephoneâ where in every repetition of information, said information becomes slightly more dire and slightly more inaccurate.
Second, it reminds of the âgroup think = group stinkâ paradigm, which I bring up from Biggâs âHedge Hoggingâ. The premise is that when people are asked to make decisions as a group, they tend to make very poor investment decisions, much poorer than if they simply choose a leader/dictator that made the decisions without question. The âgroup thinkâ problem stems from too much information and bias inserted by all involved parties⦠If one thinks of the market at current levels (DOW 7350); is this market making some of the worst possible decisions? Given that the market is a collective group and is âalways rightâ, does the current age of instant information and feedback produce possibly more irrational prices? As a collective society, has there ever been a time in history when so many of us are acting on the same information at the same time?
Third, people are claiming that this economy is worst than the great depression. That seems like a bold claim to me. What I see is a market that, in the process of reacting to information instantly, has dropped faster than ever. I think the quickness of the drop is what has everyone so afraid â but â I tend to think of this as healthy. I imagine a patient with food poisoning throwing up all the garbage that had no place being in there in the first place. The longer that crap remained in the system the more damage that would have potentially been done. Better to get rid of it quick and dirty so to speak than to prolong the inevitable.
As a trader, its tough not to worry about some of this stuff â partly because I am entrenched in information on a daily basis, but, I try to keep it in perspective. Right now however, it does seem like a lack of perspective has completely engrossed almost all media outlets. Iâm hearing teenagers speak about credit and debt⦠since when did 16 year olds understand what a mortgage was? Since now I guessâ¦
Personally, I think weâve entered a new era of market dynamics. I want to call it the âNo BSâ era because of how much freely available information is constantly being dissected and processed by our collective society. These market reactions, while difficult to endure if you are a believer in the âBuy and Hopeâ mentality, are not only good, but also an excellent indication of what we are to expect in the future from our ever advancing economy, i.e. quick and efficient, if not irrational, price discovery. Isnât that what a well functioning marketplace is supposed to do?
Mike
In light of recent volatility, some of the highest ever, I began thinking of our societyâs reaction to this credit crisis. I started to question whether or not this credit fiasco is really as bad as everyone seems to think. My opinions came from the changes weâve experienced as a society over the last 20 years. I began thinking about how much information we are exposed to today compared to even 10 years ago. Satellite TV with dozens of news channels, satellite radio, and the numerous blogs on the internet. These mediums seem to have a collective âmindâ wherein everyday, the same news stories are repeated, analyzed and repeated over and over. With so much access how does one avoid listening? Its nearly impossible unless you live somewhere completely isolated.
So suppose we have this collective mind as a society that is currently being bombarded with our governmentâs decisions, the bank failures, the perma-bears and bulls, conference calls, the Jim Cramers of the world, and so on and so on. Not to mention the uncertainty inherent with a new administration. I sometimes doubt whether there is actually anyone currently not aware of these âdireâ economic conditions, again, unless they live in complete isolation.
So, what is the result of this collective information processing?
For one, it is like a positive/negative feedback loop⦠society gets more and more anxious and more afraid, even though there may not really be significant reasons to be SO afraid and SO panicky with investing, lending and spending. Think about how rumors spread, it is human nature to embellish and exaggerate. Sometimes I think of the internet and media as one giant game of âTelephoneâ where in every repetition of information, said information becomes slightly more dire and slightly more inaccurate.
Second, it reminds of the âgroup think = group stinkâ paradigm, which I bring up from Biggâs âHedge Hoggingâ. The premise is that when people are asked to make decisions as a group, they tend to make very poor investment decisions, much poorer than if they simply choose a leader/dictator that made the decisions without question. The âgroup thinkâ problem stems from too much information and bias inserted by all involved parties⦠If one thinks of the market at current levels (DOW 7350); is this market making some of the worst possible decisions? Given that the market is a collective group and is âalways rightâ, does the current age of instant information and feedback produce possibly more irrational prices? As a collective society, has there ever been a time in history when so many of us are acting on the same information at the same time?
Third, people are claiming that this economy is worst than the great depression. That seems like a bold claim to me. What I see is a market that, in the process of reacting to information instantly, has dropped faster than ever. I think the quickness of the drop is what has everyone so afraid â but â I tend to think of this as healthy. I imagine a patient with food poisoning throwing up all the garbage that had no place being in there in the first place. The longer that crap remained in the system the more damage that would have potentially been done. Better to get rid of it quick and dirty so to speak than to prolong the inevitable.
As a trader, its tough not to worry about some of this stuff â partly because I am entrenched in information on a daily basis, but, I try to keep it in perspective. Right now however, it does seem like a lack of perspective has completely engrossed almost all media outlets. Iâm hearing teenagers speak about credit and debt⦠since when did 16 year olds understand what a mortgage was? Since now I guessâ¦
Personally, I think weâve entered a new era of market dynamics. I want to call it the âNo BSâ era because of how much freely available information is constantly being dissected and processed by our collective society. These market reactions, while difficult to endure if you are a believer in the âBuy and Hopeâ mentality, are not only good, but also an excellent indication of what we are to expect in the future from our ever advancing economy, i.e. quick and efficient, if not irrational, price discovery. Isnât that what a well functioning marketplace is supposed to do?
Mike
