Cutting Through the Noise
With the tremendous proliferation of investment information available, cutting through the noise can be difficult.
Information is not the same as advice
There is an old saying in the investment industry: “Don’t confuse brains with a bull market.” The inference, of course, is that it’s easy to pick winners when markets are rising. The challenges emerge when the markets change their course, as they always do. With the tremendous proliferation of investment information available through the internet and other sources, a modern corollary might be: “Information is not the same as advice.”
Interpreting the data
Technology continues to make information more widely, and instantaneously, available. This has provided the opportunity for investors to make more informed decisions. However, this also comes with pitfalls. Primarily, the difficulty arises in interpretation. Prudent evaluation often requires specialized skills and insight. It also involves cutting through the noise to focus on the most important factors when making investment decisions.
In buoyant markets, the noise can be amplified. Rising markets provide confidence for investors to take on more risky behaviours. New innovation can also make it difficult for many to assess risks, because expectations are largely driven by hope and uncertainty about the future.
Today is no exception. In May, the cryptocurrency Dogecoin, a joke between two engineers named after a “doge meme,”1 became the fourth most valuable digital currency after gaining 14,000 percent this year. This was much to the surprise of its cofounder, who reportedly created it in “a few hours” and sold his holdings in 2015.2 Similarly, SPAC issuances have surged, prompting regulators to issue warnings. SPACs sell shares with the objective of buying a private company to take public. They are known as “blank cheque” companies for a reason: they have no operating business and often no stated acquisition targets. With increasing endorsements by celebrities, investors have been warned not to be “lured into participating in a risky investment.”3
Fighting the Fear of Missing Out
It’s easy to get caught up in the excitement — we’d all like to ride the next superstar investment to financial freedom. We may also feel that we aren’t successful investors unless we are in the middle of the action. Yet, when there is too much enthusiasm for what appears to be a good opportunity, it can prove unsustainable; the warning signs often only apparent to the astute.
Some of the most successful investors are able to ignore the noise when they make portfolio decisions. They follow the specific rules established to control risk within a portfolio. While such an approach may not produce the results that make overnight headlines, it provides a good litmus test to avoid being carried away by the enthusiasm of the moment.
Cutting through the noise is easier with an advisor by your side
As we look ahead, we’ve needed greater endurance than other nations in the return to normalcy. With strengthened commodity prices, the reopening of certain economies and increasing inflationary pressures, the investing landscape looks different than just a year ago.
The changing times are precisely when cutting through the noise is important. Trusted advisors can provide thoughtful evaluation and scrutiny in investment choices. Enjoy the market advances, but continue to look forward and use our resources to help you reach your own investment goals.
- Meme: an amusing captioned picture/video widely spread online through social media; en.wikipedia.org/wiki/Doge_(meme)
- Special Purpose Acquisition Company; sec.gov/oiea/investor-alerts-and-bulletins/celebrity-involvement-spacs-investor-alert
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