Friday, December 02, 2005

It is not enough for information to be available...

... it's only valuable to you if you consume it.

When I started thinking about making equity investments a few months ago, I struggled with the asymmetry I faced in terms of information. Professional investors had access to all the information I did (i.e. the internet) plus their proprietary information feeds plus the informal information they could pick up due to their position.

I therefore reasoned that I stood the best chance of doing well in areas where I could discover useful information (legally) for myself.

So, I chose to concentrate a large portion of my pot in retail. Why retail? Well, I am already heavily exposed to IT (all my human capital is invested there for a start...) so that wasn't an option if I wanted some diversification. I chose retail as the second best as it's the industry I probably have most exposure to.... I visit shops every day... I have friends who have worked for retailers at various levels and it's a simple business to understand. I figured that my own experience as a shopper would give me a good handle on which retailers were doing well and which were on the slide long before their profit figures showed a problem.

However, my best investment turns out to have been one of my smaller ones. It was a bet I placed on a Japanese Market index. Why did that perform so well? A lot of it was, of course, luck.

But I have belatedly realised that there is a second reason. My initial theory... that I would do best when I had access to information that others don't have... wasn't the whole story. It wasn't that I needed proprietary information... it was that I just needed it before most other people.

It's obvious in hindsight but I had been assuming that information travels - and is consumed - instantaneously. This is, of course, not the case.

My Japanese investment is an example of this: The Economist reported the opportunities in Japan several weeks before the mainstream newspapers started telling their readers to invest there. Those few weeks were when I made a lot of my gains.

Now... this case was good luck. But it hits on an important point. I am a very quick reader and can extract the key points from a mass of text with a skim read. This allows me to invest a small amount of time each day skimming internal IBM blogs, newsgroups and intranet sites to gain a disproportionately large amount of information to help me with my job.

Looking externally, the same is true... the economics, business, technical and news sites I read consume less of my time than one would think. My question is: does this give me an advantage that I can exploit - either for my investments or for my career?

When we are asked to think about our strengths, "reading comprehension" isn't usually at the top of anybody's list but perhaps it really can be used as a strength. I think it certainly gives me an information advantage in multiple situations... presumably this is true for lots of other people... I wonder if there are techniques one can use (or career paths to follow) to get the maximum benefit from this ability?


Polly Shaw said...

And for those of us who lack the ability to distil useful information from the vast amount of bumf in the world there is Gendal World, though its value as an investment guide is severely limited, as I assume you are rational enough to extract all financial value from your musings before posting them.

I suppose The Economist doesn't count as a mainstream paper: it has a average monthly ABC circulation figure of 25,895 (Jan - Jun 2005) as opposed to The Observer's 441,004 (Apr - Sep 2005), but don't you think all your competitors in the City read it on their way in to work by tube or taxi? Whilst the total readership of The Economist may be lower than that of other newspapers, it does not follow that the active share-dealing readership is lower.

Richard Brown said...

"but don't you think all your competitors in the City read it on their way in to work by tube or taxi? Whilst the total readership of The Economist may be lower than that of other newspapers, it does not follow that the active share-dealing readership is lower."

True... However, reading the Economist from cover to cover takes real discipline. My suspicion is that the only people who do so are long-haul travellers and anoraks.

I, sadly, fall into both camps.

My strong suspicion, however, is that many, if not most, of the 26,000 copies they sell each month go unread. People sign up for a subscription and then grow to dread getting home on a Friday evening knowing that there will be a new copy of the Economist to add to the growing pile of copies they still haven't read.

I guess we could also look at the IT industry. How many of your colleagues read associated publications? The Register? Computing? Glossy monthlies?

I suspect you would find a surprisingly large number of uninformed people in any career. I suspect it's a myth that everybody in financial services is clued-up, career-driven and utterly ruthless. I imagine it's just like IT.... some people are like that, some people coast and a lot of people just float about in the middle muddling through.