The Data Problem
Quality of information is usually a guiding principle for effective investment strategies. But the main issue today in the markets is the massive excess of data, which makes extremely difficult for investors to see the reality of things. In this data-saturated world, wealth management firms are often tempted to opt for the shell-shock approach, making it almost impossible for their clients to distinguish between the absolute and the irrelevant.
The Behavioural Problem
The next crash will be just as bad, if not worse, than the last one. Nothing has been learned, and nothing has been changed. The most basic of human behaviors, the tendency towards moral hazard has been completely overlooked by the federal institutions (cryptocurrencies are only the last example). Once again, those federal institutions, entrusted with so much power, have been exposed as being rather intellectually shallow, or at least devoid of common sense or common utility. The very same federal institutions that could not and did not see that a housing bubble was forming are also equally complacent about corporate bond yields touching all-time record lows right down to CCC junk that sits right next to default.
The media has always been susceptible to enthusiasm and fear. And using the media’s speculations as a guide to action would necessarily mean missing buying at the bottom and selling at the top. To accomplish those return-producing actions, it is up to the investor or to his advisers.
What makes the investing task harder now is that the media reports are, nevertheless, suspect and useless. Therefore, the investor’s responsibility is even greater today. It is an everyday task to avoid being misled.
The (Possible) Solution
Investors are on their own in the war for Alpha.
The solution is simple. And it can be defined as Technological Excellence. Technology is in fact a great equalizer, eroding the competitive advantage of even well-entrenched firms and propelling others to the forefront. It plays a major role in our industry structural change, as well as in creating new industry standards.