Informational Democratization and Oprah


New York – My wife tells me its Oprah’s last show today. There are also a number of soap operas ending soon or have just ended. At first I, was not very concerned about it, until I remembered that all scripted shows were having difficulty economically compared to the much cheaper reality TV shows. Lacking any intelligent script, these shows have to have asides for all the actors so that you know what they are thinking.

It got me thinking about the general trend towards more and more information with less and less relevance to investors.

We hear the term democratization a lot these days. When it comes to research, we typically talk about the access of investors to the internet. Investors can get earnings per share estimates from a number of analysts on Yahoo Finance, for example. Informational democratization has been made possible by interconnected technology and accelerated by social networking sites.

At least from a technology perspective, it is much easier for research firms to distribute research or information than it was when I was hammering out text on a Telerate machine and then firing my comments around the world at 1200 Baud. A lot has changed in the world of information since then. But like reality TV, the fact that we can distribute massive amounts of information does not make the information useful. Of course, the really useful information (inside information) is illegal to trade on. Expert networks and primary information in general have been shunned by the money managers as they wait to see just how extensive the legal process will be and what the implication will be for using this information.

In the arena of primary research, one way to potentially get the jump on the competition is to take terabits of blog, chats, social media and tweets and crunch the data to see what consumers are excited about. This is a captivating approach, until one realizes that firms that produce these products are using the social media sites expressly to create the “buzz” that the investor is looking for. For example, movie studios use social media to hype upcoming movies. Some go so far as to insert questions in online games that promise extra whatever if you respond to the pop-up question. As a result, the investor may only be measuring marketing effort, rather than genuine interest in a product.

So where do we go from here. Perhaps the old tried and true experienced and reasoned analytical approaches are not so outdated.



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