In Investing, How Much Information is Enough?

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In Investing, How Much Information is Enough?

In Investing, How Much Information is Enough?

Tobias Carlisle Google Talk

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To everyone, more is always better and I am referring to information. Investors who have read books such as Common Stocks and Uncommon Profits  by Phillip Fisher would understand what I am referring to – The Scuttlebutt Theory. Many investment books constantly teaches us to gather as much information as possible on a company to make a more well informed decision.

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However, have we ever thought about how much information is truly necessary and the opportunity cost of the long researching process? More often than not, 80% of the information can be obtained using 20% of our time. While the remaining 20% would require the remaining 80% of our time. An investor who is able to act upon only 80% worth of information would be able to identify 5 times more opportunities than an investor who only acts when he has 100% worth of information. At times the latter investor may not even have the chance if the stock price has moved whilst he is spending his time finding the other 20% worth of information.

Furthermore, how much information is truly enough? I remembered reading this from a forum and found it to be extremely spot on. In summary a forumite was giving a brief overview of a Japanese company such as EV/EBITDA 1.0x, no debt, loads of cash etc. However, other forumites started querying for additional information such as the revenue/geographical breakdown, different business segments, catalysts etc. Yet, if we were to think about it, a company trading at such valuations, what more is necessary to be known? If one isn't convinced, no amount of information can convince him.

With investing or anything in life, one has to be able to strike a right balance. On this note, I would like readers to ponder on the question – is finding the remaining 20% worth of information using 80% of their time truly worth it? Could they put that time to better use elsewhere?

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I developed my passion for investment management especially equity research at a relatively young age. My investment journey began when I was 20, at a point in time where markets were still recovering from the Global Financial Crisis. My portfolio started from money I saved over the past years and through working during the holidays. I was fortunate to have a good friend with common investing mentality to began my journey towards value investing. To date, we still research and invest in companies together, discussing valuations and potential risks of a company. To date, I manage a fund with a value investing style. Positions are decided upon via a bottom-up approach or smart speculation (a term I came up with when buying a stock for quick profit due to a mismatch in prices in the market due to takeovers/selling of a subsidiary or associate). Apart from managing my own portfolio, I enjoy sharing my research with family and friends, seeking their opinions and views towards the stock. Reading Economics in London, I constantly keep up with the financial news in Singapore & Hong Kong. Despite my busy schedule, it has not stopped me from enjoying other aspects of life. I enjoy a variety of activities in whatever free time I may have – endurance running, marathons, traveling, fine dining, whiskey appreciation, fashion. Lastly, I enjoy meeting new people, discussing ideas and gaining new perspectives towards issues in the world.

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