When it comes to investing investors seem to be addicted to information. The whole industry seems to be obsessed with learning more and more about less and less until they know everything about nothing. How much information do we actually require to make an investment decision? As Daniel J. Boorstin opined, “The greatest obstacle to discovery is not ignorance - it is the illusion of knowledge.
Logically more the information, the better it is, seems obvious. But if the information is of no use then it can be simply ignored. Does monthly information on industrial production figures really matter? Is monthly inflation figure really important or the exports and imports and the deficit? Quarterly earnings estimates? The GDP forecasts, the monsoon, the political upheavals, short term monetary measures, interest rate hikes, changes in tax laws, budget proposals etc. Do these things really matter in the long run on your investment decision?
Investors need to understand that it is far better to focus on what really matters rather than be swayed away by the dalal street noise, the TV channels and the print media gossip. These only add to the confusion.
Investors would be far better off analyzing the 4 to 5 things we really need to know about an investment rather than trying to know everything about everything concerned with the investment.
As for me being a value investor, the most important thing to know about an investment is the characteristic of the business. Is it sustainable model run by a credible management, does it have a strong moat, its financial position and pricing power, and is it available at attractive valuations. However if we lose our focus on what we really need to look at, then we are bound to drown in the details and the overload of useless information. For example a bad quarter earning or a temporary lull in business, or a volatile stock price behavior can derail our conviction of our investment.
Watching stock prices or NAV of mutual funds daily is a sign of assimilating information which leads to oscillation between greed and fear and ultimately confusion and inferior judgements. Investing is a game of patience. Once committed to a particular style and a theme, the trick is to have the patience and the commitment to stick to it.
The above points may or may not be useful to everyone in their approach to investing but the important lesson here is that you should determine the factors you will use to assess your investment choices and then focus on your own analysis of each of these factors.
