Data, data everywhere, and not a thought to think
Did you know that between the dawn of civilisation and 2003 we had created 5 Exabytes of data? I didn’t know how many zeros an Exabyte had so I used more data up by going on to Google to find out (it is 18). Now that is probably the largest number I have come across and what is more astonishing is we now create as much data as this every two days!
It is remarkable how much our lives have changed in the last sixteen years, but are we any better off? Not much would be my guess. Sure you can order take away food, taxis and anything from Amazon at the touch of a button. We can also watch countless videos of cats playing the piano on YouTube any time we want but these are hardly life affirming benefits.
I believe that for every benefit that has resulted we have created at least as many issues. A client who is a GP complained that patients now Google their symptoms before they come to see him, and as a result most are convinced they have cancer when it is quite often something far less serious. Bullies at least had to look you in the eyes when being nasty but now cyberbullying is rife. Also anyone that wants a platform to let the world know their opinion on everything can now find several avenues.
I pay no attention to comments made by people I do not know on the internet. When you walk down the street and you see someone with a saucepan on their heads shouting “the end is nigh” you likely give them a wide berth but there is no such visual clues on the internet. Even more depressing is when newspapers and TV programmes “quote” comments made by the public on Twitter. The emptiest vessels make the most noise is an expression that comes to mind.
Sadly, the mix of instant gratification and voicing of opinions is not a healthy environment when it comes to investing.
If you ask people, I am sure many would say they are aware you need to have a five to ten year horizon when making investments. Personally I would go further and say that for a lot of people their investments and pensions will be with them for the rest of their lives. Very rarely is there a set date that everything needs to be liquidated. Given this timescale it is necessary to have patience, which is not the card game that can be played on your phone.
It is not easy to be patient in an environment where valuations can be accessed simply by pressing a button and funds are compelled to detail performance over 3, 6 and 12 months on their fact sheets. But I do believe that having that virtue is crucial to avoid the pitfalls that human emotion can lead us to.
Imagine you do not have an adviser and want to start saving. There is an app that allows you to do this at what seems low cost with thousands of funds to pick from. You have seen the warnings that past performance is no guarantee of future returns but what other way is there to choose? You see a couple of funds that have done really well in the last couple of years and you pick those.
The first year or so the funds do well but then perform badly and the gains you have made have been wiped out. You decide to get out and move to the two funds that have done best over the last twelve months. This cycle repeats itself and after five years you have made little or no profit. So has technology helped in this scenario? I don’t think so.
We monitor the size of funds and there are definitely a few that have risen dramatically in size in the last couple of years. They are excellent funds and have done particularly well but when they do have a period of underperformance, as they most definitely will at some point, I hope they do not get deserted by the performance chasing brigade.
It is extremely difficult to act contrarian when it comes to investing. The truth is you need to have a blend of styles and managers and not all of the funds you invest in will perform well at the same time. Too many people think it sensible to get out of the funds that have done poorly and put more in to the “winners” but if the poorer performing funds have simply found that their style is out of fashion, you should probably do the reverse.
For all investors, patience is a difficult discipline, made even harder with the chatter expressed in investor forums where opinions are bandied about like confetti. Therefore, if using the internet, when it comes to investing, it may be less costly watching Tiddles playing Chopin instead.