Saturday, June 25, 2022

Adventures in Perfect Information

When I was younger (in the early days of the internet, I'm not that old!) I always envisioned that as the information age washed over us, better information would be more readily available and we as a society would achieve a greater sense of knowing the path forward and make better decisions overall. 

Do you remember in economics classes we learned that in an economy that people were rational actors and that there was a concept of "perfect information".  The description from Wikipedia is below.

https://en.wikipedia.org/wiki/Perfect_information

In economicsperfect information (sometimes referred to as "no hidden information") is a feature of perfect competition. With perfect information in a market, all consumers and producers have complete and instantaneous knowledge of all market prices, their own utility, and own cost functions.

So from a personal standpoint, have we achieved an internal sense of informational nirvana? How are we doing on this "perfect information" concept? Do we know where the economy is going based on rule-based-data based off historical results? 

As an individual investor I think it's harder than ever to make good decisions based on information. For every post/site describing an imminent recession, there's another saying the bottom is in. Do you trust analysts? Look at the range on analyst expectations below?  Everywhere you look you see diverging views from experts. 

https://www.cnbc.com/market-strategist-survey-cnbc/
  https://www.cnbc.com/market-strategist-survey-cnbc/

So after 9 months of managing my money, what have I learned?

  • Perfect information does not exist
  • Do not fall for confirmation bias
  • Pick a few investing strategies, learn them well and follow the experts
  • Embrace diverging opinions and think critically about them
  • Protect your capital: 50% loss is 100% gain needed to breakeven
While it may seem obvious I think it's critical to think this way as someone with limited time on my hands and endless information. For myself, I've gravitated towards a dividend growth strategy and following some great macro analysis to help guide the sectors I should stay in or avoid depending on the macro environment. A part of me would love to buy and hold everything forever, and for some companies I think this is a great strategy, but there's too much great macro information out there to help guide decision making. 

Where do I usually go for my information? The links below (in no particular order and no references) are where I tend to gravitate for great information, as well as a number of mainstream resources.
So while I don't have perfect information, I'd like to think I have enough divergent opinions to help guide me through the current macro environment and aid in my decision making as an individual investor.

Let me know if you have some great resources to share!

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