The challenge of investing in the modern world

When it comes to investment, people often say that the proven investment foundation for decades has not changed: as long as you adhere to these principles, you have a great chance of success. While this may be true in a few cases—for example, buying low and selling high—but in most other areas, the investment landscape has changed dramatically. Modern investors face many unique challenges.

Incredible amount of information and speed

Perhaps the most daunting challenge facing modern investors is the absolute speed and quantity of information. In the past, apart from annual and quarterly reports, it was difficult to obtain reliable information about listed companies. The Wall Street Journal and a few financial-related publications attempt to collect and disseminate business news. But the news spread to more public at the speed of printing (if it reaches them). In order to be reported, a story must be important; even so, it must be written, printed, and delivered.

Key points

  • The investment landscape has undergone tremendous changes, and modern investors are facing many unique challenges.
  • Perhaps the most daunting challenge facing modern investors is the absolute speed and quantity of information.
  • Over time, many investors have learned to filter information and create a library of selected and reliable resources that match their investment tastes.
  • Even if you have a good grasp of quality information, you may still be hurt when inaccurate information or basic uncertainty hits the market.
  • Advertising can sometimes push investors to an advantage through hype about investments that are not necessarily the most suitable.

Now, even little-known companies can generate a steady stream of information—from daily stock price fluctuations, announcements, and posts on dedicated message boards. When there is so much information available at any given time, it can be difficult to determine what is really important.

Find the right resources

The difficulty of finding the right resource is related to the challenge of having too much information available. As an investor, how to find good resources in the crowd? What needs to be clear is that having a large selection and easy access to free resources is an overall victory for modern investors. But when there are so many options, research can be daunting. Although investment mainly involves facts, opinions have an impact on many areas (such as whether technology is more important than fundamentals).

Over time, many investors have learned to filter information and create a library of selected and reliable resources that match their investment tastes. However, until then, it is difficult to avoid being overwhelmed by the scope and various opinions there.

Reactionary market

Even if you have a good grasp of quality information, you may still be hurt when inaccurate information or basic uncertainty hits the market. Although the correction/exposure time is usually short, inaccurate information can still impact the market. Inaccuracies can be honest errors, malicious rumors, or even financial fraud on the part of the company. More importantly, financial markets are so obsessed with the continuous flow of information that interruptions in the flow of information or moments of real uncertainty may be worse than bad news.

Market reactions have always been extreme, but increasingly global information gives investors more reasons to overreact (in fact, hourly). You don’t need a huge leap of imagination to see the good and bad consequences of each headline that pops up in the feed.

choose

When does the choice become unstoppable? When faced with various choices, there are contradictions in the research on the limits of human thinking. Research shows that we divide choices into manageable few (for example, between three and eight). This applies to ice cream shops with five types of ice cream. But the financial sector provides far more than eight types of stock investment. When faced with all these choices, we may try to find shortcuts and divide our choices into several. This is useful, but it may also lead us to discount better options. For example, people looking for a fixed income may focus their choices on utility stocks that pay dividends, while dividend exchange-traded funds (ETFs) may provide them with better services.

The role of advertising

The combination of investment and advertising is both a boon and a curse for investors. On the one hand, advertising helps investors familiarize themselves with the wider range of investment tools available today.Modern investors are more aware of available investments other than stocks, bonds, and time deposits.Most people will be able to explain mutual funds, index funds, ETFs, and possibly options and mortgage-backed securities.

Knowledge is a great thing, but advertising can sometimes push investors to an advantage by hype about investments that are not necessarily the most suitable. Take mutual funds as an example. In general, compared with higher-cost, professionally managed mutual funds, investors with limited funds are best to choose the lowest-cost investment option (index fund or ETF).However, advertising can change this relatively simple mathematics by taking advantage of professional management without mentioning costs. Therefore, if professional managers are not qualified, then advertising will cost investors market returns—plus management fees.

Bottom line

Indeed, some investors have succeeded using traditional methods, but they have closed the door to the modern world. This list includes well-known fund managers Warren Buffett and John Templeton.

However, for most of us, the flow of information is comforting and helps us feel more confident in our decisions. The trick is to find the right balance when taking information and turning it into action. In fact, most investors can pass some very traditional advice-measure twice, cut once, and survive the bashing of modern information. In other words, before making a buy or sell decision, take the time to evaluate the information in front of you.

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