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By Abhishek BasumallickAs information grows increasingly abundant and is available instantly, what limits consumption of information is the attention that we can pay for it.
Nobel laureate economist Herbert Simon articulated this beautifully, when he said, "in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes.
What information consumes is rather obvious: it consumes the attention of its recipients.
Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it".
This is especially true for investors.
For any investor, today there are too many sources of information – newspapers, magazines, business news channels, social media (twitter, Facebook, blogs), brokerage reports circulated freely in myriad WhatsApp groups, buy/sell/hold ideas of influential investors or mutual funds.
All of it creates an incessant buzz that is difficult to ignore.
People frantically try to read up more and more, egged on by the illusive 500-page per day guideline from Warren Buffett, thinking that speed-reading or skimming through completely disparate content will somehow add to their investment wisdom and consequently increase their returns!
It is like running on a treadmill, because the more one reads, the more unread content piles up.
In this process, investors have become passive consumers of information.
There is very little or no assimilation or thoughtfulness to aggregate all disparate information sets.
And so, all this information does not add up to any intelligence or wisdom eventually.
Investors are unable to look for patterns in the information that they consume.
What is required for synthesizing all the information in a framework that can help decide what to ignore and what to focus on.
I like to think of investing as we do science experiments.
We start with a hypothesis of what we believe is right and then conduct experiments to check if our hypothesis stands up to scrutiny.
We also try to look for negative tests to see under what conditions would the hypothesis be wrong.
For example, one of my working hypothesis is that politics up to a point does not make a huge difference in investment returns.
However, if there is a major change in political thinking, then it can have a large impact.
With this hypothesis in mind, whenever I am trying to go through political news, I try to ascertain if any major change in political strategy is taking place.
If not, I tend to ignore the news.
In India, we have not had any major change in political and economic thinking since the liberalisation of the early 1990s.
So if we take a long-term view, most political news is simply noise.
Another example of a framework element from an investment perspective that I follow is that I do not spend time looking at companies whose business (product or service) I can’t understand in less than five minutes.
I put that in my “too hard” category and then move on.
If as investors, we are able to narrow down the items we need to focus on and then work only on those, including reading, discussing and thinking on those topics, it would be far more beneficial to us.
If we like a company, we should try to understand how it operates, what we should be looking for in their results to understand how the company is doing.
These may be non-financial data points as well, how the competitive landscape looks like, what are the world leaders doing (may not be present in India) and such things, which can help expand our knowledge about the company and industry.
The interesting part is that this sort of knowledge compounds over time.
It is very important to remember that what you say “no” to determines what you can say “yes” to.
And what you can say “yes” to would determine the outcome of an endeavour.
(Abhishek Basumallick is a Kolkata-based value investor.)
