T.S. Eliot posed the question more than fifty years ago – “Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?”
These questions find much greater relevance fifty years later, in an age of accelerated information and information overload, when people are living larger parts of their lives on Facebook and Twitter than with their families and ‘real’ friends.
The rate and way in which we receive information has changed dramatically – from newspapers and television to constant news online. In fact, we have made our personal lives available to the world in tweetable and retweetable moments.
Now, as much as we try to stop consuming the vast amounts of information coming at us, we wrestle against the paranoia of ‘missing out’ on important information or being out of the loop on something.
This is especially true when it comes to stock market information. As if the second-by-second changing stocks prices were not enough, we are seeing analysis of these changes at a similar pace if not faster.
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Every 0.01% move in the inflation is analyzed threadbare and trading strategies laid out to deal with the same. Every price movement is justified as if the analyst knew it coming. And we, as consumers of such information, believe every such spoken or written word as a gospel truth.
We Indians don’t want to know everything, but that is what the audibly smart but noisy news anchors force on us, day after day, night after night. And that’s not their problem. Spewing endless amount of information and making noise is what earns them their bread. And they simply say what we want to hear.
In The Little Book of Behavioral Investing, James Montier writes…
When it comes to investing, we seem to be addicted to information. The whole investment industry is obsessed with learning more and more about less and less, until we know absolutely everything about nothing. Rarely, if ever, do we stop to consider how much information we actually need to k now in order to make a decision.
As Daniel J. Boorstin opined, “The greatest obstacle to discovery is not ignorance – it is the illusion of knowledge.”
Now, the problem with information is not that it is diverting and generally useless, but that it is toxic.
Too Much Information is Dangerous
In The Signal and the Noise: Why So Many Predictions Fail — but Some Don’t, Nate Silver writes…
The instinctual shortcut that we take when we have “too much information” is to engage with it selectively, picking out the parts we like and ignoring the remainder, making allies with those who have made the same choices and enemies of the rest.
Alvin Toffler, writing in the book Future Shock in 1970, predicted some of the consequence of what he called “information overload”. He thought our defence mechanism would be to simplify the world in ways that confirmed our biases, even as the world itself was growing more diverse and more complex.
That’s what Charlie Munger defines as commitment and consistency bias. We want to consume so much information because we are perennially in search of the ones that are consistent with our worldviews.
So if I believe Opto Circuits is a great business, I will scour for information that proves it is a great business, and dismiss every information that tells me how foolish I am in my belief.
If I believe the Sensex is heading towards 40,000, I will keep myself busy searching for information that validates my belief, and ignore every person who tells me how the stock market does not move in a straight line.
Anyways, Nate Silver writes in his book…
…if the quantity of information by 2.5 quintillion bytes per day, the amount of useful information almost certainly isn’t. Most of it is just noise, and the noise is increasing faster than the signal. There are so many hypotheses to test, so many data sets to mine – but a relatively constant amount of objective truth.
Then, Nassim Taleb writes in Fooled by Randomness…
…minimal exposure to the media should be a guiding principle for someone involved in decision making under uncertainty — including all participants in financial markets.
Taleb’s key argument is that what is reported in the media is noise rather than information (now, that’s even worse!), but most people do not realize that the media is paid to get your attention.
You see, most of the information that stuffs our ears and eyes everyday is…
1. Unusable: If your actions or behaviour will not be changed by the information coming in, then the information is likely noise. If an event has no effect on your long-term strategy, then ignore the noise. Like what’s happening in Syria, and Scotland.
2. Untimely: If you’re not going to use the information you hear in the near future, and if the story could change by the time you’re ready to use it, the information is noise. Just about a year back, I heard a reputed stock research house in India predicting the “End of India” when the economy was down and so were the stock markets. The same guys, in just a year’s time, are selling the “India’s Next Megatrends” story, when stock valuations look near their peak!
Frequently changing your views of the stock market when you’re a long-term investor is a bad habit. The action might end up doing you harm if it changes your behaviour – so stop looking and stop seeking.
3. Distracting: Unwanted information can easily distract you from your long-term goal. Television anchors screaming at us so loudly that we don’t dare disagree with them doesn’t make their advice any better than average.
Anyways, apart for these, most information and noise you hear day in and day out is based on what someone thinks will happen. And thus it is hypothetical.
This is even true when CEOs themselves appear on business channels and predict (often under force) about their next quarter’s earnings. Even if the person is right, the information is practically useless, and often misleading.
We Need Less Information, More Wisdom
Now, what is this elusive quality called wisdom? How do we get it?
First, let’s begin by taking a look at the four levels of thinking, as per the DIKW Model.
The first level is data – simple facts and figures. Example – Suzlon’s stock is trading at Rs 14.
Next we have information, which is data that’s been collected and organized. For example – Suzlon’s stock is down 97% from its all time high. Information is a reference tool. It is something we turn to when trying to create something else.
The third level is knowledge. For example – Suzlon’s stock has crashed because the business has taken a huge hit owing to the decline in demand for wind power equipments worldwide and the company’s extremely stretched balance sheet.
Knowledge is information that we have digested and now understand. Organized as knowledge, the information we have collected is given a context.
The fourth and final level is wisdom. For example – Suzlon is a gruesome business on account of its high capital intensity, dependence on government regulations, and the management’s extremely poor capital allocation track record. And given my philosophy of buying only quality business, I must avoid the stock.
Now, this wisdom may seem indistinguishable from knowledge. But they are two different things. Often, what we find touted as wisdom is simply opinion.
Knowledge is not wisdom. There is a big difference. Wisdom is the proper use of knowledge. To be more precise, wisdom is knowledge that has been applied in a way that takes into account all its pertinent relationships and that is consistent with universal laws.
Someone has explained the difference between information, knowledge, and wisdom through this beautiful chart (only that he could’ve connected the dots in the wisdom chart)…
Now, too much information can be like a Catch-22 situation. While it adds to our knowledge, it can be a block to our wisdom.
This is because we can be so busy trying to process more and more information, that we don’t have the time for the quiet contemplation that is essential for the development of wisdom.
How to Avoid the Information Noise
Life might be a race against time but it is enriched when we rise above our instincts and stop the clock to process and understand what we are doing and why.
A wise decision requires reflection, and reflection requires a pause. And you can pause only when you say NO to unwanted information.
It is essential then, that we learn to let the unwanted information we receive go in one ear and out the other and to get the knowledge we need, to stop somewhere in between.
And how do we do that? Well, here’s something I practice to avoid the unwanted information to corrupt my mind, and instead focus on my pursuit of wisdom –
- I don’t watch the television, especially when it’s on.
- I don’t read newspapers, and not many magazines.
- I don’t get involved on online discussions, especially stock forums.
- I don’t maintain my stock portfolio online, which helps me avoid extreme emotions that accompany changing stock prices.
- I make my investment decisions with the help of checklists, and not readymade reports or recommendations.
- I don’t try to seek perfect information on companies I analyse (that’s an unproductive use of my limited time).
- I focus on just 4-5 most important characteristics of a business, which helps me ask better questions – like how sustainable and profitable is the business going to be 10 years down the line, how does the balance sheet looks like, what is the management doing with cash, and how seriously is the stock overvalued or undervalued.
All this leaves me enough time to focus on seeking wisdom through re-reading things like –
- Seeking Wisdom: From Darwin to Munger
- Poor Charlie’s Almanack
- Warren Buffett’s letters to shareholders
- The Intelligent Investor
- Common Stocks and Uncommon Profits
- Influence: The Psychology of Persuasion
- Prof. Sanjay Bakshi’s Blog
These are places where the real wisdom lies. At most other places, you will find just information, and too much noise.
It is interesting that armed with mountains of information, we have turned arguing into a national pastime – that’s what has created Super Prime-Times on the bubblevision (aka, television).
In a recent post on Brain Pickings, Maria Popova shared an essay on seeking wisdom in the age of information. She wrote…
We live in a world awash with information, but we seem to face a growing scarcity of wisdom. And what’s worse, we confuse the two. We believe that having access to more information produces more knowledge, which results in more wisdom. But, if anything, the opposite is true — more and more information without the proper context and interpretation only muddles our understanding of the world rather than enriching it.
This barrage of readily available information has also created an environment where one of the worst social sins is to appear uninformed. Ours is a culture where it’s enormously embarrassing not to have an opinion on something, and in order to seem informed, we form our so-called opinions hastily, based on fragmentary bits of information and superficial impressions rather than true understanding.
“Knowledge,” Emerson wrote, “is the knowing that we cannot know.”
The Dutch philosopher Spinoza suggested that wisdom is seeing things sub specie eternitatis, that is, in view of eternity.
A fundamental principle of wisdom is to have a long term perspective; to see the big picture; to look beyond the immediate situation.
That’s a great advice for you as an investor – to have a long term perspective; to see the big picture, and to look beyond the immediate situation. That’s the dawn of wisdom.
But them, wisdom requires humility. You must be teachable. You must be willing to live with understanding, with meaning, and with wisdom.
But are you willing and ready?
The nation wants to know! 🙂