If you wish to invest in a new stock, what’s the first thing you do?
- Ask your friends/relatives
- Go through research reports easily available on the internet
- Rely on the media news
- Ask a credible advisor
- Take a help and then conduct a rigorous study to ensure the quality of the business
Take a pause and think about your answer…
If your answer is either of the options 1, 2 or 3, then definitely this story is a must-read for you.
In a digital era, the problem is never the lack of information. The problem is analysing and interpreting the information in a meaning way for action-oriented results.
So how to interpret the data or information in a meaningful way?
The first step is to analyse whether the information is relevant or not.
While I was reading various ways on how to judge whether the information is relevant or not, I came across a story of Socrates.
Socrates was a classical Greek philosopher. He was once visited by an acquaintance, who wanted to share a juicy gossip with his philosopher friend.
He asked Socrates if he would love to listen to a story he just heard about his friend.
Socrates replied, ‘Before you tell me anything, you need to pass the Triple Filter Test.’
He went on to explain further. He said the first filter is Truth.
Turning towards his friend, he asked him, “Have you made absolutely sure that what you’re about to say is truth and no lie?”
The friend shook his head and replied. “No, I just heard about it, and…..”
Socrates cut him off by replying, “Ok. You don’t know for sure if that is true. Tell me, is what you want to say something is good or kind?”
Again the man shook his head. “No, actually it is just the opposite. You see….”
Socrates lifted his hand and stopped the man speaking. “So, you’re not sure that what you want to share is true, and it isn’t good or kind. Well, you can still pass the test with the last filter. Tell me, is the information you want to tell is useful or necessary to me?”
A man with a grim face replied, “No, not really.”
To this Socrates replied, “Well then, if what you want to say is neither true nor good and neither useful nor necessary, then please don’t say anything at all.”
Saying these words, Socrates left for his abode leaving the man speechless.
Triple Filter Test In The Era Of Information
In the digital epoch, where information is ubiquitous, it is important to differentiate the wheat from the chaff.
Most people believe that the story they wish to share is all about the information. However, we forget to analyse if the information is actually relevant and useful to derive meaningful conclusions. The world would be so different and beautiful if we would share the information which has been verified, is good and useful to take further actions.
Quite often in the world of investing, I find it surprising to see the abundance of information which doesn’t pass any of the above filters.
Let’s take an example of the Infibeam case. What happened? Infibeam Avenues lost about 71 per cent of its market value on a single day on 28th September 2018. This fall from INR 197 to INR 50 came after the WhatsApp message circulated in the trader’s group that raised serious concerned about the company’s accounting policies. What happened next? Panic was seen, speculations mounted, management got perturbed and investors were misguided.
In a statement by the Managing Director Vishal Mehta, he stated, “Some WhatsApp rumours took rounds in the market and it created panic among market participants and investors at large. We categorically rescind such rumours which are erroneous and motivated.”
Now, this is not just one case. Coming to the fallout of an NPA crisis at IL&FS, the panic chronicling around the DHFL, many NBFC’s and other housing finance companies had to take the crisis with a pinch of salt irrespective of the change in their fundamentals.
Investors indulged in frenzied investment decisions, without understanding whether the news was true, good or useful to them. Everyone was busy speculating the news, which was not even proved true in the first place.
Now the next time, before you hear out or speak up, remember the following:
Is it true?
Is it good?
Is it useful?
If the information which was given to you or you wish to share passes the above filters of Truth, Good and Usefulness, then you’re all set to take an action!
There are two ways to do it. One is, you spend enough time reading and analysing the information, which is tedious and time-consuming. Second is, you hire an expert who is on top of all the news and information and works round the clock to interpret them for action-oriented investment decisions. This will save your time and all you have to do is read the filtered information which is specifically related to your investments.
You probably have an answer to this!