When speaking about investing, people often make statements to the effect that the tried-and-true investment basics haven’t changed in decades: as long as you stick to these principles, you have a good chance of being successful. While this may be true in a few instances—for example, buy low and sell high—the investing landscape has been vastly transformed in most other respects. There are many unique challenges that modern investors face.
- The investing landscape has been vastly transformed so that there are many unique challenges that modern investors face.
- Perhaps the most daunting challenge that modern investors face is the sheer speed and volume of information.
- With time, many investors learn to filter out information and create a select pool of reliable sources that match their investing tastes.
- Even if you have a good handle on quality information, you can still get burned when inaccurate information or basic uncertainty hits the market.
- Advertising can sometimes push an investor toward an edge by hyping an investment that isn’t necessarily the best fit.
Incredible Volume and Speed of Information
Perhaps the most daunting challenge that modern investors face is the sheer speed and volume of information. In the past, solid information about publicly-traded companies was hard to come by outside of the annual and quarterly reports. The Wall Street Journal and a limited number of finance-related publications attempted to collect business news and disseminate it. But this news moved to the greater public at the speed of print (if it reached them at all). In order to be reported, a story had to be significant; even then, it had to be written up, printed, and delivered.
Finding the Right Resource
The difficulty of finding the right resource is tied to the challenge of there being too much information available. As an investor, how do you find the good resources in the crowd? To be clear, having lots of choices and easy access to free resources is an overall win for the modern investor. But research can be daunting when there are so many choices. While investing primarily deals in facts, opinion colors many areas (such as whether technicals matter more than fundamentals).
With time, many investors learn to filter out information and create a select pool of reliable sources that match their investing tastes. Until then, however, it is hard to avoid being overwhelmed by the range and variety of opinions out there.
The Reactionary Market
Even if you have a good handle on quality information, you can still get burned when inaccurate information or basic uncertainty hits the market. Inaccurate information still hits the market, even though the time to correction/exposure is often shorter. Inaccuracies can be honest mistakes, malicious rumors, or even financial fraud on the part of corporations. More importantly, the financial markets are so addicted to the constant information flow that an interruption in the flow or genuine moments of uncertainty can be worse than bad news.
Market reactions have always been extreme, but the increasingly global reach of information has given investors more reasons to overreact (literally on a per hour basis). It doesn’t take a great leap of imagination to see good or bad consequences with every headline that pops up in the feed.
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