"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.