In our view, data are critical for assessing economic and market conditions. But based on Fisher Investments UK’s reviews of financial headlines, many commentators take an oversimplified approach to incorporating this information in their analyses. Here is how Fisher Investments UK thinks investors can benefit by taking a different approach to using data.
Based on Fisher Investments UK’s reviews of market history, data availability was limited for most of the 20th century. In the pre-Internet age, print media dominated, which meant a certain lag time in accessing information. Popular newspapers printed once a day, so any market results and economic data releases would be at least a day old. Financial magazines and journals provided more granular analyses but published at an even longer lag—perhaps weekly, monthly or quarterly. Those seeking historical data to add context and colour needed to consult archives (e.g., the library or microfiche)—a time-intensive process. Not to mention calculations required more labour, too, i.e., crunching numbers by hand or with rudimentary calculators.
Those days are gone, as the Internet has made information far easier to access. An investor can access detailed, robust databases with a few mouse clicks. See this article (ha!). Or the Bank of England, which has an inflation calculator showing the cost of goods and services as far back as 1209.[i] Many other statistical organisations have publicly accessible consumer price index datasets dating to World War II or earlier. Data processing programmes facilitate organising large swaths of information to do complex calculations.
But this evolution doesn’t necessarily grant investors an edge previous generations lacked. Yes, technology has accelerated data analysis, and we have seen a proliferation of indicators purporting to hold special insight into the market. For example, some research outfits will aggregate myriad nuanced information (e.g., stocks’ valuations or yield spreads between junk and investment-grade bonds) to determine the market’s prevailing mood.[ii] The implication from these findings: knowing the dominant emotion at the time will reveal where markets are headed next. But Fisher Investments UK hasn’t found that to hold up, as human emotion can swing without warning.
We have also seen some economists discuss the implications of niche datasets. For example, during the COVID pandemic, we read reports analysing coronavirus case counts and projected trends. That information could be useful for policymakers. But for investors? Not so much, in our opinion, considering COVID case counts never really correlated to equity market returns beyond initial, short-term swings (though we observed some analysts try and argue otherwise).[iii] In other words, not all datasets are useful to investors at all—even if they seem like they may be or if they were at one time.
So why does Fisher Investments UK think these sophisticated data series don’t possess special insight about the market? According to our research, markets are efficient discounters of widely known information. That means prices already reflect well-known developments and data, which include valuations, price trends and analysts’ opinions. Data’s ubiquity means the numbers themselves don’t possess any special insight. Any information that is public or widely known has likely already been acted on, negating its advantage, based on Fisher Investments UK’s experience. You have to look at the data differently and more correctly than the crowd to gain an edge, in our view.
But we don’t think this necessarily puts investors at a disadvantage. It can free people up to ditch or downplay data that aren’t relevant or telling. Instead of trying to find unique insights from commonly cited figures, we think the edge lies in analysing how commentators assess and discuss the information.
For example, based on Fisher Investments UK’s reviews of valuation metrics, many use these figures to assess whether a stock is cheap or expensive—drawing conclusions based on those subjective values. But if you grab these data off the Internet and apply them to your assessment, we think many other investors are performing a similar exercise. What Fisher Investments UK thinks an investor can do differently: Analyse the discussion surrounding valuations. Some questions to ask include, what are the expressed concerns or reasons for optimism—and do those points hold up upon further study? What are the broader arguments surrounding the numbers? Are those points based on sound, evidence-based reasoning or speculative, potentially emotional conjecture? Synthesising the conventional wisdom’s discussion of the data can yield some insight that few others may have identified or have overlooked—and that difference can provide an edge, in our opinion.
In our view, investors benefit from digging deeper, beyond the data, to understand what is going on. If you can recognise an underlying bias at play—and understand its shortcomings—that can help you understand the market and make more informed investment decisions than other investors.
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This document constitutes the general views of Fisher Investments UK and should not be regarded as personalised investment or tax advice or a reflection of client performance. No assurances are made that Fisher Investments UK will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. Nothing herein is intended to be a recommendation or forecast of market conditions. Rather, it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. In addition, no assurances are made regarding the accuracy of any assumptions made in any illustrations herein. Fisher Investments Europe Limited, trading as Fisher Investments UK, is authorised and regulated by the UK Financial Conduct Authority (FCA Number 191609) and is registered in England (Company Number 3850593). Fisher Investments Europe Limited has its registered office at: Level 18, One Canada Square, Canary Wharf, London, E14 5AX, United Kingdom. Investment management services are provided by Fisher Investments UK’s parent company, Fisher Asset Management, LLC, trading as Fisher Investments, which is established in the US and regulated by the US Securities and Exchange Commission.
Investment management services are provided by Fisher Investments UK’s parent company, Fisher Asset Management, LLC, trading as Fisher Investments, which is established in the US and regulated by the US Securities and Exchange Commission. Investing in financial markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance neither guarantees nor reliably indicates future performance. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates.
[i] Source: Bank of England, as of 10/12/2024. Inflation refers to prices rising economy-wide.
[ii] Valuations are measures that attempt to determine whether a stock is cheap or expensive based on certain fundamental criteria (e.g., price, earnings, sales, etc.). Yield spreads refer to the difference in yields of fixed interest securities with different risk (i.e., creditworthiness) profiles—typically, a narrower spread implies lower risk and a wide spread means higher risk.
[iii] Source: World Health Organization and FactSet, as of 16/12/2024. Statement based on number of weekly COVID-19 cases reported to WHO and MSCI World Index returns with net dividends, in pounds, 5/1/2020 – 31/12/2020.