- One of the key hallmarks of a trader is his ability to absorb information at a rapid pace and form a view / opinion regarding the direction the market is headed. An equally important (if not more) quality is his ability to modify his view in the presence of new or contrary information that has a significant bearing on his previous opinion.
- Traditionally a trader would seek information and data from a range of sources and use his experience, analysis and instinct to arrive at a gap between demand-supply. This initial view would then get converted to a trade depending on the most viable structure. However such a view is always subject to frequent review by the trader to ensure any changes in the initial assumptions he/she would have made.
- In this era of extreme connectivity and information overload, something fundamental appears to be happening to the human brain.
- Empirically speaking, from my experience, there are a couple of things that are happening.
- People, in general (not only traders) are forming opinions at a much faster pace in contrast to earlier times. A large part of these opinions are usually based on collated data and information that is available today at a click of an icon, and in some cases pushed into our smartphones through an incessant barrage of social media feeds.
- The second thing that is happening is a hardening of such opinions to solid points of view (often misrepresented as “facts” and “truths”)
- While this has been happening for some time now, traditionally the partisan stances were restricted to politics and religion (the age old food for furious debate). However, the Indigo airlines issue last month was a startling eye opener. I observed a range of professionals and business people on my social media feeds take extremely hardened stances on both sides of the debate and they did not feel shy about airing their opinion to whoever was willing to listen/debate (in some cases broadcasted it over mainstream/social/internet media channels). A significant number of these people were qualified professionals leading businesses or owning them. The reason it sparked the need to put my thoughts down on paper was that the evidences used to form such strong views consisted of a short video without prior context or post outcome, a couple of statements made by involved parties and two letters published by the airlines themselves. Hardly compelling evidence (in my opinion).
- Some quick research showed that there is a set of professionals researching on whether these changes are purely behavioural or are they more fundamentally physiological (is the human brain actually changing given the onslaught of information). This brings me to the problem I started with today,
what happens when this malaise starts impacting traders?
- The speed of forming views about a market without adequate information, and an inability to change ones views if presented with adverse evidence or absent evidence, are both very risky. These traits, if acted upon simultaneously by a full section of traders in a marketplace would lead to high volatility in supplies and substantial loss of value for trading organisations. We need our traders to be flexible in their view of the market and seek sufficient information before forming a view while continuously testing the validity of such a view. It is a very key and necessary characteristic.
- Going ahead, we might need to do two things.
- Create a metric and evaluate the extent to which an individual may be susceptible to such opinion formation/opinion hardening aspects, and secondly,
- Devise training/sensitization programs that allow them to overcome these aspects of their brain function that is perhaps happening to them as part of human evolution.
- It won’t be possible to disconnect the trader from this connected world, but we must vaccinate them against possible viruses that might arise out of such extreme connectedness.
- Your thoughts?
Global Head – Strategy,
Swiss Singapore Overseas Enterprises