That marginal piece of information – What do you need to change you views?

“What would I need to see to change my view?”  

– Adam Robinson

Most data are confirming. New economic data are always occurring, but these announcements just reinforce what we already know. First, a lot of economic data moves together, so there is limited added or marginal information. Second, there is a bias with investors that they look for or see confirming information to their existing view. 

If data are not confirming, it is often viewed as just noise or discarded because of our biases.  Non-confirming data does not often cause us to change our view. In a few special cases, there is new data that will cause change. This exceptional data is what we need to focus on and look for, yet we are unlikely to be prepared for it. Some information is special because it is inherently timely and important, or it is of such size that investors have to take note.  

If you ask investors what announcements do they need to see this week that will change their minds about the construction of their current portfolio, most will not have any idea what you are asking. They will understand the question, but will not think about focusing on any one piece or set of information, yet in reality, it is a limited set of information that often causes portfolio changes. A good investor should know what marginal piece of information is necessary to change his portfolio and focus on that information.

Think about events earlier this month, the market perception was that the US was headed to recession. Then the 300,000 jobs print occurred and the world changed. The same could be said about monetary policy. The investment world was up in arms about a Fed that would be too restriction, but then Chairman Powell said everything was on the table and the world changed. The investment world is not that cut and dry, but let’s also be realistic about how new facts may be the catalysts to a new narrative or a change in the narrative. The two events could not have been forecasted, but n investor should know that jobs report or a Powell comment can change market expectations.

To be more specific and systematic, an investor should rank or prioritize information announcements. Some information is useful but not meaningful. Other data are critical for making a decision. An investor should know what is critical and make sure the focus of his time are on those data and events most important.