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Stock Market Basics – Beware of the Information Overdose – Research & Ranking

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India’s has taken a giant digital leap over the last few years. High speed internet aided by the availability of affordable smart phones has changed our lives drastically. It has also transformed the way we invest in equity. Gone are the days when one had to call up his/her stock broker to execute a trade. Today anybody with a smartphone and a trading and demat account can invest from anywhere in the world.

Unfortunately, India’s massive digital leap has also brought along few negatives too. One of them is the overload of information from business news channels and social media platforms. While many investors consider the easy availability of information, specifically investing related information a boon, the reality is quite different.

In a digital era, the problem is never the lack of information. The problem is analysing and interpreting the information in a meaning way for action-oriented results. So how to interpret the data or information in a meaningful way?

The first step is to analyse whether or not the information is relevant.

A story associated with Greek philosopher Socrates offers a valuable lesson which can be useful for an investor to judge if the information is relevant or not. An acquaintance who wanted to share a juicy gossip with Socrates once visited him. He asked Socrates if he would love to listen to a story he just heard about his friend.

Socrates replied, \’Before you tell me anything, you need to pass the Triple Filter Test.\’

He explained further. He said the first filter is Truth.

Turning towards his friend, he asked him, \”Have you made absolutely sure that what you\’re about to say is truth and no lie?\”

The friend shook his head and replied. \”No, I just heard about it, and….\”

Socrates cut him off by replying, \”Ok. You don\’t really know for sure if that is true. Tell me it is good or kind?\”

Again the man shook his head. \”No, actually, it is just the opposite. You see….\”,

Socrates raised his hand and stopped the man from speaking. \”So, you\’re not sure that the information you want to share is true, and it isn\’t good or kind. Well, you can still pass the test with the last filter. Tell me, is the information you want to tell is useful or necessary to me?\”

A man with a grim face answered, \”No, not really.\”

To this Socrates replied, \”Well then, if what you want to say is neither correct nor good and neither useful nor necessary, then please say nothing at all.\”

Saying these words, Socrates left for his abode, leaving the man speechless.

Stock market basics which every investor should keep in mind – Use the Triple Filter Test to analyze the information you receive

In the digital world, where information is freely and easily accessible, it is crucial to differentiate the wheat from the chaff. Most people believe that the story they wish to share is all about the information. However, we forget to analyse if the information is actually relevant and useful to derive meaningful conclusions. The world would be so different and beautiful if we would share the information which has been verified, is good and useful to take further actions.

Often in the world of investing, investors come across abundance of information which doesn\’t pass any of the above filters.

Let\’s take a look at few examples.

After the emergence of 2nd wave of Covid 19 in India earlier this month, investors panicked triggering a sell-off in the market. Social media platforms were filled with news about how a March 2020 like crash was on the cards.

 

   Sensex trajectory (May 1st to 28th May) post the emergence of Covid 2nd wave

There were many who got misled by these never-ending theories of pessimism and sold out their investments, albeit at a loss hoping to enter again at lower levels. However, as you can see from the above graph, the impact of the 2nd wave on markets was a limited one.

Now let’s take a look at another example:

Talking about the fallout of an NPA crisis at IL&FS in the year 2018, the panic chronicling around the DHFL, many NBFC\’s and other housing finance companies had to take the crisis with a pinch of salt irrespective of the change in their fundamentals.

Investors resorted to irrational investment decisions, without understanding whether the news was true, good or useful to them. Everyone was busy speculating about the news, which failed to be true in the first place.

So the next time, before you hear out or speak up, keep these three questions in mind:

Is it true?

Is it good?

Is it useful for me?

If the information you received or you wish to share passes the above filters of Truth, Good and Usefulness, then you\’re fine to act on it!

However, this is easier said than done. With a volley of information from all the sides, how you are going to combat the latest investing challenge – Overdose of information?

There are many ways to do it. One is, you read enough and analyse the information, which is tedious and time-consuming. Second is, you hire an expert who analyzes the information and interprets it for action-oriented investment decisions. This will save a lot of your time and energy as you just have to read the filtered information which is specifically related to your investments. Click here to get in touch with an expert.

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