Gordon Gekko may have been from the Bernie Madoff school of investing, but his quote from the 1985 film Wall Street holds up: “The most valuable commodity I know of is information.”
Fast forward thirty years, and the explosion in the amount of readily available information hasn’t necessarily reduced its value, but it’s made it critical to have a reliable and time-tested approach for processing it.
Make no mistake: as an investor, you are nothing more than a processor of information. The better and more efficiently you process information, the better your risk-adjusted returns and the more consistently you can earn them. Being a great processor of information comes down to being a combination of Jack Daniel and Eckhart Tolle.
Financial markets are simple information-discounting mechanisms, where price is the messenger but not the message.
However, in traditional finance theory, information is treated as a generic item. This traditional approach implies that all types of information impact all investors equally, which is categorically incorrect.
In reality, financial markets are made up of different types of investors, all of whom make decisions based on different time horizons. A given piece of information has varying impact depending on the type of investor evaluating it and over what time frame.
This variation in processing and valuing of information is key to keeping financial markets liquid and mostly stable.