How Information Overload Leads Investors Astray

The world is overloaded with financial information. There is so much information that the average investor has more access to metrics and analysis than the most prestigious investing institutions of times past.

At the touch of a button, one can get insider selling data, share ownership, a full history of 10-Ks, every investor call, and more.

Not only that, breaking news arrives within seconds, revealing new tariffs, a change in the unemployment rate, the jobs report, inflation, and more.

All this information is quickly analyzed by investors. Does this mean stocks will go up, down, or sideways? Action must be taken, or so investors think.

Thanks to improvements in technology, anyone can trade stocks in seconds to react to this news. You don't have to visit a broker in person or make a phone call. Just open Robinhood and place a trade in the blink of an eye.

And what is the result? Constantly changing opportunity costs, as stocks rise and fall on a whim. A word from the President's social media accounts can flip a stock and the market in minutes.

But this begs the question: are we too quick to react to news? Is this onslaught of information analysis actually leading investors to better investing outcomes?

In the modern world of quick information and quick trading, the average duration of holding stocks has dramatically declined. Take a look.

While investors once typically held stocks for five years, the internet era saw a dramatic drop in holding periods to less than a year. But that isn’t the worst of it.

While the average duration for holding stocks is now measured in months, nearly half of all trading volume is no longer in stocks themselves. Options trading is becoming an increasingly popular way to participate in the stock market.

To make matters worse, over the last 5 years, these options have moved from being 1-3 month-long options to being primarily short-dated!

Now that we know what the average investor is doing, what are successful investors doing? And by successful, I mean famed investors heralded for their long-term success and wisdom in the industry.

Finchat.io has a list of super investors and their holding periods. Take a look at what it shows:

• Warren Buffett - 36 years

• Ken Fisher - 20 years

• Guy Spier - 21 years

• Prem Watsa - 19 years

• Bill Ackman - 12 years

• Joel Greenblatt - 13 years

• Ray Dalio - 10 years

• David Tepper - 10 years

• Howard Marks - 7 years

• Mohnish Pabrai - 4 years

• Michael Burry - 3 years

• Stanley Druckenmiller - 3 years

Most of these famed investors have a holding period of around a decade, with a few having a holding period of 3-4 years. None have a holding period in "months" or "weeks."

Retail investors are doing exactly the opposite of these super investors. While super investors hold for years, retail investors are increasingly trying to time everything.

Too much and constantly evolving information is leading to attempts to game everything perfectly. But perhaps this isn't the right idea.

Perhaps, in a world where information is moving incredibly fast, it's actually better to move slowly. Why? Because a truly great investment possesses an inherent stability that a fleeting headline cannot easily undermine.

When buying or investing in a business, one is essentially owning all future profits of the company at present value, not just the profits for the next week, month, or year.

News, on the other hand, is often temporary. Tariffs come and go, tax policies come and go, and ultimately, does anyone remember the news from five years ago anyway?

Can you name any investment you own where, if a news story or piece of data had or hadn't broken in years past, the investment thesis would be significantly worse or better today?

While there certainly are important revelations from time to time, I can recall very few that ended up sticking and altering a company to a large degree. Yes, there are some. But in today’s age, the market re-prices and re-rates every piece of news to a great degree, not just those of true import.

So perhaps it would be wiser for the investing world to slow down rather than speed up.

As Warren Buffett famously said, “Our favorite holding period is forever.”

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