A colleague and I recently reminisced about what a great decade the ‘90s was – and not just because we were all younger. Back then, the internet complemented our lives – it didn’t dominate them. For the first time, we experienced the convenience of doing many tasks ourselves from the comfort of our homes, such as banking and online shopping. We engaged in new technologies that let us enjoy the benefits of time savings, increased connectivity with others, and access to more information.
Today, the time-saving aspect of the internet has been superseded by the time spending aspect. According to a report by DataReportal, an online global reference library, in 2024 the average time global internet users spent connected each day was 6 hours and 38 minutes. More than a quarter of the day! This number is likely understated for developed nations like Canada, white-collar, workers, and younger cohorts.
Unsurprisingly, finding information and following news and events were among the top reasons given for usage (Figure 1). This begs the question: an abundance of “free” information is making us better informed, but is it helping us make better decisions?
“By digging deeper and not following the herd mentality, investors can unearth some outstanding opportunities that others are missing.”
Our own worst enemy
We like to think that we’re rational most of the time, and that we base decisions on what’s best for us given the information we have at the time. But when it comes to investing, behavioural finance tells a different story. Our rational side constantly competes with our biases and emotions for control over our decisions. So, while having access to virtually limitless information should lead to better decisions, behavioural blind spots pose challenges that investors need to overcome.
Behavioural blind spots that can affect how we decide
- Confirmation Bias. We tend to seek out information that supports what we already think and discount information that contradicts our beliefs. For example, when there are always lots of experts forecasting an imminent market correction or crash. Reading a stream of articles, which all predict the same thing, can reinforce its perceived inevitability.
- Herd Mentality. Following the crowd instead of doing our own analysis or trusting our instincts for fear of missing out (FOMO). Think Cannabis stocks in the later 2010s and the meme stock craze through the pandemic. These stocks were driven by FOMO – not fundamentals.
- Hindsight Bias. We often rewrite history in our favour, changing our views to fit with what actually happened. In hindsight, it was obvious that technology stocks were in a bubble at the turn of the century. Many who heavily invested at the time now insist they “knew it all along”.
- Recency Bias. Putting more weight on recent experiences rather than facts. Many investors tend to feel the market is “safe” after strong returns and “risky” after a big sell down. The belief is that what has happened recently will continue, whether that’s based on analysis or not.
- Loss Aversion. We feel the pain of losses more than we feel the joy of gains, so we try harder to avoid the former. When markets are declining, some investors seek to lock in losses being unable to withstand the pain, even though drawdowns are a great opportunity for long-term investors.
Cutting through the noise
The combination of endless news flow with social media projecting false realities, as well as overcoming challenging behavioural biases, can make it hard to focus on what truly matters. Both professional and individual investors have a role to play here.
For professional money managers, having access to – and focusing on – the right information makes all the difference. A well-defined, research-based process informed by quality data and information from the “horse’s mouth” (like annual reports and conversations with a company’s management team) should be complemented with other trusted sources, such as industry analysts (not Reddit chat boards).
It also involves looking beneath the headlines to see what’s being priced into a security or the market, doing scenario analysis and taking advantage of opportunities that present themselves. For instance, the tariff war has undoubtedly caused some companies to sell off to unrealistically low prices. By digging deeper and not following the herd mentality, investors can unearth some outstanding opportunities that others are missing. Professional investors often work in a team environment that can stress test ideas by challenging each other’s perspectives.
For individual investors, it begins with knowledge. Understanding what drives markets, as well as the risks in different asset classes and how they perform over time, is a great place to start. Investors should also have a plan that considers their goals and risk tolerance, to create the right portfolio for long-term success. Once created, investors can run into trouble when they deviate from their plan. The tendency to become confident when markets are doing well, and cautious when they’re doing poorly, can be the cause of this. In other words, they buy high and sell low – the opposite of what they should do!
Successful investing isn’t about reacting to every headline or chasing the latest trend. It’s about filtering through noise, challenging our own biases, and staying committed to a well-researched strategy. The internet has given us unprecedented access to information. But in a world overflowing with data, the real advantage belongs to those who recognize and focus on quality over quantity.
Scott Blair, CFA
Head Portfolio Manager
