When asked what I read, I always plug Twitter. It is one of the most effective communication devices ever invented, I usually say, with no exaggeration.
Twitter has become so important to finance that it is taking over the role of the professional analyst. As news broke of the Cyprus bailout last month, Twitter was a mile ahead. When big financial news is breaking, all the money in the world can't buy the information streaming from Twitter's free iPhone app. It is indispensable.
Quality or quantity?
But there is another side of Twitter, as Washington Post columnist Ezra Klein recently wrote:
"Toward the end of the [US presidential] election, I pretty much stopped reading Twitter altogether. It improved my life, and the quality of my work . . . reading almost anything but Twitter was a huge improvement in the quality of the information I consumed."
"Most forms of information are slow-moving," Klein wrote. "If I neglect my RSS feed today, the posts will still be there tomorrow. The same is true for the books I'm reading, the magazines piled on my nightstand, the tabs open in my browser." Ditto for conventional journalism. If I check BusinessDay at 4am or 9am or noon, I will find many of the same stories. There is no rush. The most important stories are still the most important, not superseded simply because something else appears at the top of a "feed".
But on Twitter, not checking your feed for an hour can mean missing something important. Since there's no easy way to see what everyone you follow has tweeted in the last day - to say nothing of the last week - the best way to stay on top of what's important is to become a Twitter maniac, glued to the screen all day. It's as if you don't know when your favourite TV show will air, and there's no way to record it when it does. Not wanting to miss it, you sit in front of the TV all day, waiting for it to come on.
Reality TV, Twitter-style
But that means having to sit through a lot of soap operas and reality TV shows. Which is exactly how Twitter can feel sometimes. And I feel it's getting worse.
In decades past, top investors wrote to their clients once a quarter, maybe once a year. Top newspaper columnists wrote once or twice a week.
Twitter has sent those expectations through the roof, with Twitter "stars" penning 100 updates a day - not because they are teeming with insight, but because quantity is how you stay relevant in our hypercompetitive media. I follow 411 people on Twitter - not a lot by any stretch - yet as I write this, my feed is filling up with about 15 new tweets a minute. And I'd venture that 90 per cent of tweets on my feed come from 10 per cent of the people I follow.
There is no possible way that I need to know 15 new pieces of information a minute. Nothing remotely close to that. So finding something meaningful on Twitter often means having to swim through drivel, gossip and hyperbole, no matter how selective you are at choosing who to follow. At any given time, my Twitter feed looks something like this:
Stocks are up!
BIG REVERSAL. Stocks now PLUNGING (ASX down 0.01%)
Did you see that post on gold?
I don't own gold, and here's why.
Here's why everyone should own gold.
BOOOM! Stocks are up!
HUGE MISS ON UNEMPLOYMENT NUMBERS!!!
BIG Improvement on unemployment numbers!!!
Stocks are down!
Interest rates are sideways!
Gold is money!
Here's a picture of my cat!
And so on.
We have more information than ever. More data. More analysis. More opinions.
Confidence or accuracy?
Is there any evidence that the investor 20 years ago who read the newspaper in the morning and watched the news at night was worse off than today's hyperconnected investor, the vast majority of whom underperform index funds?
Is there any evidence that the age of Twitter has made us better at predicting what the economy will do next, or where the market might be heading?
I know of none. What I do know is that several psychologists, notably Stuart Oskamp, have shown that when given more information, confidence in a prediction increases while the accuracy of that prediction stays the same, or even declines.
Twitter takes this to a new level. It treats investing as something that is fast and emotional. Something that needs 24/7 vigilance. It makes everything that we know leads to better investing results - selectivity, emotional stability, independent thinking and a long-term outlook - harder to achieve.
I will even propose that the average investor 20 years ago was more informed than the average investor today, simply because the investor 20 years ago was exposed to less chaff. This is where Nassim Taleb's wisdom comes in:
"The calamity of the information age is that the toxicity of data increases much faster than its benefits."
So, I'm taking a break from Twitter for a week. We'll see how much I miss it, whether I feel less informed, or if I find a lack of good things to read. I suspect none of these will be true.
Morgan Housel is a Motley Fool contributor. You can follow The Motley Fool on Twitter @TheMotleyFoolAu. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only.
- Sydney Morning Herald