Twitter: The Carnival Barker of Investing

"The calamity of the information age is that the toxicity of data increases much faster than its benefits." -- Nassim Taleb.

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 Wall Street analyst. As news broke of the Cyprus bailout last month, Twitter was a mile ahead of Wall Street. Joe Weisenthal of Business Insider wrote:

Twitter is increasingly equaling or surpassing the value of traditional sell-side research from Wall Street analysts ... Because the [Cyprus] news was so surprising, and because there's so little time between when the bailout was announced early Saturday morning, and when trading begins Sunday evening, there's been an aggressive thirst for information and analysis on what it all means. But the sell-side has been fairly slow, and the Twittersphere has come to the rescue.

He is right. 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. 

But there is another side of Twitter, as Washington Post columnist Ezra Klein recently wrote:

Toward the end of the election, I pretty much stopped reading Twitter altogether. It improved my life, and the quality of my work. There was so much partisan sniping and gaffe-driven garbage that 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 writes. "If I neglect my RSS feed today, the posts will still be there tomorrow," he says. "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 WSJ.com at 4 A.M. or 9 A.M. or noon, I will find the same stories. There is no rush.

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 didn't know when your favorite TV show will air, and there's way to record it when it does. Not wanting to miss it, you sit in front of the TV all day, waiting for it come.

But that means having to sit through a lot of soap operas and realty TV shows. Which is exactly how Twitter can feel sometimes. And I feel it's getting worse.

In decade's past, top investors wrote their clients once a quarter, maybe even once a year. Top newspaper columnists wrote once or twice a week.

Twitter has sent those expectations through the moon, with Twitter stars penning 100 updates per 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 per minute. And I'd venture that 90% of Tweets on my feed come from 10% of the people I follow.

But there is no possible way I need to know 15 new pieces of information per 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 (Dow 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 JOBS NUMBERS!!!

BIG Improvement on jobs numbers!!!

Jobs numbers show the economy is rebounding!

Jobs numbers show a new recession is here!

The jobs numbers are FAKE!

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.

But does any of it make us better investors?

Is there any evidence that the investor 20 years ago who read The Wall Street Journal in the morning and watched Louis Rukeyser at night was worse off than today's hyper-connected 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 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 Twitter break 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 will be true.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics. 


Read/Post Comments (18) | Recommend This Article (37)

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  • Report this Comment On April 05, 2013, at 10:45 AM, TMFGortok wrote:

    I've taken quite a few Twitter breaks (my twitter is @gortok, for anyone who's really interested), and I have to say that every time I've taken a 'break' from twitter, I've felt better for it.

    Scott Hanselman (@hanselman) said this recently, and I agree with him: When you follow someone on twitter, you're following the *whole person*. That means when you follow me, you're likely to see tweets about the following:

    - Things I find funny

    - Posts from The Motley Fool

    - Sardonic tweets

    - Programming related tweets

    - Stupid things government does

    - Libertarianism

    I keep coming back to twitter because that's how the 'breaking' news happens in the software development world. I just find myself paring down who I follow so that I can get the highest signal-to-noise ratio possible.

  • Report this Comment On April 05, 2013, at 11:06 AM, TMFDavidRivers wrote:

    @TMFGortok, I think you misspelled "first!" :P

  • Report this Comment On April 05, 2013, at 2:26 PM, TMFBiggles wrote:

    So... you're saying you don't like my cat pictures?

  • Report this Comment On April 06, 2013, at 12:09 PM, cellofool100 wrote:

    What's Twitter? Guess I'm still livin' in the 80's. :)

  • Report this Comment On April 06, 2013, at 3:57 PM, KickBackAt40 wrote:

    I can't imagine signing up for something that is going to feed drivel to me 15 times per minute. I gave up on CNBC years ago when I felt that it was impairing my ability to focus on what I thought really mattered. I do have a twitter account, but I only use it to basically make a note to myself on an article that I find interesting when I'm using a portable device. I haven't even considered signing up to follow anybody else's tweets.

  • Report this Comment On April 06, 2013, at 11:41 PM, TMFLaw wrote:

    This sounds right to me.

    I think you could have written something like this a decade (or more) ago, focusing on the explosion of information and expression on the internet in general, but Twitter does seem different, perhaps because the volume is so great that you can't even keep up with the people that you've selected to follow. Could there be (or are there already) tools that could serve as an intermediary and call your attention to things that you really need to know (instead of my not-indispensible posts about food, zombies, and aliens)?

  • Report this Comment On April 07, 2013, at 5:25 AM, daveandrae wrote:

    ^

    The answer to your question is called the Annual Report. Mine have been coming into my mailbox for years and years. Once you have obtained it, calculating the return on beginning shareholder's equity, reading through the MD&A, and making sure debt levels are not getting out of whack are all a truly long term investor needs to do.

    All of this assumes, of course, that the job was done correctly before the stock was even purchased. Everything else, in my opinion, falls into the category of "commentary" in that, one will do far, far, better in the long run if they forget about the stock market.....and e-v-e-r-y-t-h-i-n-g that comes along with it.

    Years ago, Robert M Pirsig once said "A wise man has something to say. A fool needs to say something."

    I agree with that statement.

    You will certainly get more out of life, and your investments, by planting a garden, teaching an inner city kid how to hit a baseball or learning how to ride a motorcycle.

  • Report this Comment On April 07, 2013, at 11:56 AM, Maddox8212 wrote:

    Twitter is like any other source of information. The user must be savvy enough to chose which source is credible enough to follow. I have learned many things from Twitter users and at times have seen misinformation. The solution is simple, you don't see what you do not follow. You control the message.

  • Report this Comment On April 08, 2013, at 5:35 PM, Hefslaugh wrote:

    There is little doubt that all of the available information today is more noise than substance. In reality it distracts and gives a sense of false comfort that causes many to lose their focus in investing and life. There are entirely too many people who want to broadcast every thought that rattles through their skull rather than consider its importance. I believe in focus and shielding myself from information overload. As an investor, I try to keep an emotional balance so I am not overreacting to "ever changing events." Profitable investing everyone!

  • Report this Comment On April 08, 2013, at 8:30 PM, mtprx wrote:

    What? no twitter goggles? As the April fools joke proved, people can get pretty screwed up with outright lies! Didn't your momma tell you not to believe everything you hear?

  • Report this Comment On April 08, 2013, at 8:30 PM, jszurek wrote:

    We are in the middle of a giant pendulum swing. With Facebook and Twitter and increasingly with LinkedIn and probably a hundred other things that I am ignoring, the pendulum has swung about as far toward noise as I can imagine. But this is just part of the experiment, not the endgame. Raw data may be free, but real information will have a price - the price of eliminating noise.

  • Report this Comment On April 10, 2013, at 11:36 AM, clintspicks wrote:

    Amen and right on.

    I might even tweet this post.

  • Report this Comment On April 12, 2013, at 12:07 AM, TMFJoeInvestor wrote:

    I stopped following several of the more bombastic folks on Twitter in late 2011 and never looked back. A nice thing about Twitter is that you can choose your own adventure by electing to only follow folks who are among the less volatile, emotional, and intellectually spastic.

  • Report this Comment On April 12, 2013, at 3:24 PM, NoOracleHere wrote:

    I was engaged in a debate about technical investing. I was on the side of fundamentals investing on this particular day. The question was asked what role time horizon plays. I wasn't then able to answer the question, nor am I able to definitively answer it now. My answer at that time was that you select a time horizon at which you can be competitive. If you can't do that, then the efficient market hypothesis is likely to take over. It occured to me just this morning that perhaps the answer is that you have to apply a band-pass filter on information that agrees with your time horizon. In other words, long term investors respond to different signals than do short term investors. That's not to say that technical investing is wrong, or that long term investing is always better or perhaps worse, but long term investors are less tuned to day-to-day information than day traders. By comparison, day traders would be foolish to get their information from a weekly journal. Myself? I would ignore twitter.

  • Report this Comment On April 14, 2013, at 12:15 AM, dstb wrote:

    Twitter sounds like a disease to me. I'll pass and go live my life.

  • Report this Comment On April 15, 2013, at 7:54 PM, earlyseller wrote:

    When the content of "TWEETS" become as meaningful as elements of Bartlet's Quotations, I might consider giving up my Luddite status re: 'social media.' NAH! Crap is crap. The idiocy of expecting more than "white noise" from the unwashed is sane?

    I do not text, tweet, nor will I ever open a FaceBook account to expose me to additional hacking.

    I only have fifty years of computer experience and wrote in 15 different CPU languages until I put away programmerish things.

  • Report this Comment On August 18, 2013, at 9:35 PM, mj2boogie wrote:

    I have never signed up for or looked at Twitter. Don't feel like I am missing anything, especially for investing, since I am long term buy and hold. Nothing should be that urgent in investing...

    Mark

  • Report this Comment On August 18, 2013, at 9:38 PM, mj2boogie wrote:

    And, not that it relates necessarily to this conversation, but why do news channels quote individual Tweets about anything. Just one person's opinion, and not a person of a known level of knowledge about the subject matter - just someone who tweeted their view on something - how irrelevant can that be to me as a news watcher???

    Mark

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