Tobias Carlisle Google Talk
[klarman]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.
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?
