Your Financial Plan Needs a Professional, Not a Google Search

Paul Winkler: All right. We’re back here on “The Investor Coaching Show.” Paul Winkler, along with Evan Barnard. All right.

Finding Data About Stocks Online

So tell you what. I told you I would talk about this, so I’d better do this before the other. So we were just talking a little bit about data on the internet. Can you imagine, Evan, that the data would be inaccurate?

Evan Barnard: Well, I’m just chuckling at the term, even using “data” as the information on the internet, as opposed to “opinion and conjecture, and maybe some information that’s true.”

PW: You think it might not be?

EB: That’s a stretch.

PW: Well, I was actually surprised myself that the information on different asset classes was so inaccurate or non-existent. Non-existent, let me say, not inaccurate. But I was able to find information easily on the S&P 500.

EB: Oh, sure.

PW: I was not able to find information on even just small U.S. stocks, which you’d think wouldn’t be that hard.

EB: Interesting.

PW: I wasn’t able to find long data on that at all. I was able to find year by year, I was able to find that. Value stocks, I couldn’t find data on. I couldn’t find small value. I couldn’t find international, international small.

I could not find good data. And I was actually surprised because I would have thought that’d be out there. And the only thing I could think of is maybe it’s licensing of data.

EB: If I had to guess, so this is anecdote at this point, to me, it’s an example of the free market working. And I liken it to 401(k) plan options. I think no one is clamoring for long-term international small-value data, and so nobody is providing it.

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No one is trying to get emerging markets value data over the last 20 years. So nobody is providing that because no one cares. All they focus on is the S&P 500.

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PW: And it’s interesting, I could find, for example, 15-year data on a certain fund, but we’re not talking about not being able to find data. You’re screaming, “Paul, yes, it’s out there.”

No, I’m talking about longer-term data because we have data on our computers at our office that goes back to 1926. So we have much, much longer data, but I was only trying to go back to 1970. So what’s going on?

AI-Generated Feedback Loops

PW: Well, this article was fascinating because it says, “Maybe AI Slop Is Killing the Internet, After All.” And I was like, “What on earth is that?” And it says, “The assertion that bots are choking off human life online has never seemed more true.” And I’m like, I’ll bite.

“So began an extensive career,” and this guy has this career in watching social bots, and he does what’s called bot watching. I guess bot watching is better than other stuff he could be doing.

EB: That’s certainly what you aspire to. “I’m a bot watcher.”

PW: “As a distinguished professor …” I’m trying not to let my mind go the wrong direction.

EB: It’s Mother’s Day tomorrow. Keep it clean.

PW: “… of informatics at Indiana University at Bloomington, Menczer has studied the way bots proliferate, manipulate human beings and turn them against one another.” And further down in the article, it says, “If anyone is predisposed to notice the automatons among us, it’s Menczer. A few years ago, when a hypothesis known as the dead internet theory started kicking around, positing that nearly all conversations online had been replaced by artificial-intelligence-generated chatter, he wrote it off as bunk.”

It’s garbage. “Now, though, the generative AI boom, with its chatbot boyfriends and AI influencers” — whatever that is — “is inspiring Menczer to see the theory in a new light. He still doesn’t take the idea literally, but he is, as they say, beginning to take its underlying message seriously.”

And it says you’ve got “the arrival of tools such as ChatGPT” — and a lot of us have that on our phones — “and Midjourney has made it look downright prophetic.” And you have sites such as Wikipedia, they’re “straining under the weight of AI crawlers that root around in their pages, searching for fresh information to feed their models.”

All of this is creating a feedback loop of AI-generated content. You think about feedback with a microphone. You’ve got sound that goes into the microphone, goes into a speaker, comes out of the speaker, and goes back into the microphone.

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You think about this: The internet is churning this information and digesting it over and over again.

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So the AI-generated content is created to please AI power. And I’m thinking about it as this person whispers to this person who whispers to that person down the line. And by the time you get to the end line …

EB: Telephone, or whatever.

PW: That’s where my mind is going. That’s where my mind is going is, does the information really get screwed up in the same manner as you go down the line? “AI-generated content is being created to please AI-powered recommendation systems.” Oh.

So these computers are saying, “Hey, what do the recommendation systems want? Give the people what they want.”

Humans Becoming Bystanders to Bots

EB: Well, and the number one, the prime directive for content on the internet is to keep people looking at it as long as possible. That is the driving force.

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So the internet, in a sense, the internet doesn’t care if it’s a bot commenting on a post or a human commenting on a post. It’s engagement. 

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And some of the hosts on the station talk about this some, and I get a lot of joy out of looking at the comments on content. You see these fights start, and I chuckle that it’s probably two robots arguing with each other. There’s no human in this equation at all.

PW: No, I think that’s a great point. I think it’s a fantastic point. And they’re saying that they’ve got the AI-powered recommendations, they’re eating this stuff up, and they’re threatening to turn humans into bystanders.

So he says, “In some cases, the motivation behind slop isn’t simply commercial. Russian disinformation network Pravda, for example, has published millions of articles on hundreds of newly created websites since Russia invaded Ukraine, perhaps in an attempt to manipulate the AI models themselves by churning out staggering amounts of propaganda designed for AI crawlers to ingest.” So they’re getting played. People are getting played by these AI bots, right?

EB: Right.

PW: And so the “content that doesn’t have to operate within the bounds of reality is genuinely more cute or captivating than scenes of our corporeal world.”

EB: In other words, tangible world.

PW: Real world.

EB: Yeah, real world, right? They have to use fancy words, right? It’s a bot that probably wrote the article.

PW: Yeah, probably. “In February, OpenAI reported on some ‘malicious uses’ of its models. In one, a fake Ghanaian youth organization used AI-generated articles and comments to try to swing the country’s 2024 election.” Imagine that.

Are You Being Played by the Internet?

PW: “In another, dozens of accounts potentially tied to North Korean cybercriminals landed real jobs at Western companies using AI-generated resumes,” which I thought was interesting because I had heard this week that when you use an AI-generated resume that people can see through it, and maybe not. Somebody had told me that this week, as a matter of fact, because I was talking to somebody about this, AI-generated cover letters and even AI-generated personas posing as their references.

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They’re saying it’s not hard to envision a dystopian endpoint where all these trends converge. 

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And this guy’s arguing and says, “In a world where real people can no longer make enough from digital advertising to sustain their websites,” and I thought, Isn’t that interesting? How many people have tried to set up their websites as a money-generating machine, right?

EB: Well, that was the big outcry when they were looking to shut down TikTok, is all these people are dependent on nine cents a download or 90 cents of this or that.

PW: Well then, they’re saying dead internet wins on this deal. So my point being, before we go to the break right here, the point that I want to make is this: You get on the internet to look for information. It was the great belief that one day more information would lead to more informed investors.

And the reality of it is, how many times are you actually being played by the internet? Because it’s a bunch of bots giving information, and they’re digesting information that’s incorrect and repeating it and spinning it out there for the purposes of an investment company or investment world that would love for you to do things that are more in their best interest.

This is why I’ve always said you need to understand this yourself. This is why the show exists, to help you understand how markets work, where returns come from, because it is so easy to pull you off. Case in point, if you didn’t hear the first segment of this show, go back, listen to the podcast on it, because I walked through how this informed, well-educated, really intelligent, I know the guy, really intelligent guy got pulled off the track so easily by content on the internet.

How Much Time Do Investors Spend Researching Stocks?

PW: All right, we’re back here on “The Investor Coaching Show.” Paul Winkler, along with Evan Barnard, talking money and investing. So you had a follow-up …

EB: I do.

PW: We’re talking about the internet and talking about how bad the information is and how much worse it’s getting because bots are basically just feeding garbage out there. And a lot of times, you don’t know whether you’re hearing from a real person or not. And you may be hearing from a real person, but where did they get their information?

EB: Right.

PW: You’ve got to ask that question.

EB: And people may not even be paying attention to the bots or the humans. This is out of The Wall Street Journal, Mark Holbert, “Guess How Much Time Many Investors Spend on Researching Stock Buys?”

So I’ll give you the question first before I dig in. What do you think is the average time that an investor spends researching a stock before they purchase or sell it?

PW: Well, if they do anything like what they do with cars, because they’re talking about a lot of money at stake here — so I would take weeks to make sure you do that kind of stuff, because you do that with cars, right?

EB: This reminds me of Johnny Carson. “Wrong, Paul.”

PW: Intentionally wrong.

EB: Loose spread.

PW: I’m trying to make a point.

EB: Yeah, so here we go. It was even shorter than I thought.

“Individual investors are impulse buyers. The median investor, often drawn to a stock because it’s in the news, spends just six minutes of research before buying that stock, according to a new study by finance professors Toomas Laarits and Jeffrey Wurgler at New York University.”

PW: Wow.

EB: Six minutes.

PW: Six minutes. And can they even pronounce the name of the CEO in that amount of time?

EB: Right. “And the bulk of that already-short research time is devoted to perusing a price chart of the stock’s recent performance — and often just the current day’s trading session.”

PW: Oh, my. Oh.

EB:

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So, like four of the six minutes is looking at what the stock’s done in the last day.

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PW: Oh, my. Yeah.

Looking at Past Performance

PW: Yeah, so that reminded me. My son Andrew was working in here, and one of the things I had him do was I pulled up a heat map to show him what a heat map looked like in the stock market.

Not necessarily a heat map as you traditionally see it on CNBC, with what areas of the market are moving right now. But I don’t know what else to call it. It’s like that multi-colored chart.

EB: A longer-term heat map?

PW: Where you have what was the top market sector in 2011? And what was the second-highest market sector and third-highest?

And as you go down, each one is a different color. Utilities will always be orange, let’s say, and energy will always be blue. It’s a box, and what they’ll do is they’ll show you what the top area is all the way down. And it just looks like this multicolored blanket.

EB: Like a Callan chart, almost.

PW: Yeah, just very pretty because the colors are all over the place. And the point being is that you might have one like the one I did, I remember doing this with him. You had three years in a row where energy was the top-performing asset category. It was the top out of all sectors.

And I put a piece of paper over it, and I said, “See this?” And he goes, “Yeah.” And I said, “See, energy top, energy top, energy top.”

And I said, “What do you think does best the next year?” And then he’s like, “I don’t know.” And I said, “Good answer.” No guts, no glory though, buddy.

And I pulled the paper aside and energy was the very, very worst performing market segment the next year. So the point being was what Evan was saying: What did they look at? They looked at a chart of recent history, and what would they have ended up with?

In this particular case, the top-performing area would’ve been energy. The bottom is what they would’ve gotten. They would’ve gotten the worst performance going forward.

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So that’s really bad information to use, but that’s what we were taught as investment advisors. 

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That’s what I was taught.

EB: Yeah, for sure.

PW: I remember selling my first 401(k) plan. I’m ashamed to say this, I turned to the wholesaler and I said, “Which funds should we include?” And he goes, “Well, why don’t you include this one, this one, this one, this one.”

And this is the guy that represented the fund company that was going to be put in the 401(k). And it was literally, he was telling me which funds, based on past performance, to choose, which was the worst way of going about it. But he was doing what he was taught to do.

EB: Yeah, yeah, yeah. It serves the industry very well.

PW: Yeah.

Impulse Buying Stocks

EB: The professors estimate that “before buying a stock, the median individual investor spends just 1% of the overall research time” — so this is 1% of six minutes — “about six seconds, examining its risk statistics. And just 14% of research time is devoted to analyzing the underlying company’s earnings, dividends, and other fundamentals.”

PW: That’s insane.

EB: “Instead, most of the time that investors spend researching a stock focuses on a price chart … and 73% of price chart views look back only one day or even less.”

PW: Oh, I have got to have a copy of that article. That is unreal.

EB: So here’s what a cool part. Later on in the article, Terrence Odean is quoted, who was on our academic board, and I think both of us have had a chance to chat with him several times at events.

PW: Yes, yes.

EB: They’re talking about this research. “Since picking stocks that on average will beat the market is notoriously difficult, even for Wall Street managers whose full-time job is selecting such stocks, it would be going too far to predict that individual investors on average would beat the market if they spent more time researching.”

Because the professionals can’t do it either, but it “would improve their performance by not acting impulsively, says Terrence Odean, a finance professor at the Haas School of Business at the University of California, Berkeley. … Odean adds that it takes a lot longer than six minutes to rank a large universe of potential stocks for purchase. It’s therefore understandable that, when faced with this overwhelming task, ‘investors manage the problem by limiting their search to the handful of stocks that have recently caught their attention.’”

And so it’s just very much of an impulse buy. Here’s his data, which we’ve seen before. “His research shows that, in large part because of this practice, the average stock that individual investors purchase underperforms the average stock that they sell.”

PW: Yes.

EB:

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The stock they’re buying underperforms the stock they’re selling to get the money to buy the new stock.

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PW: That is exactly what we’ve seen with pension plans.

Intuition Driving Your Purchases

PW: Now you just said now the point that you just made, Evan, you were talking about that they research the thing that’s right in front of them. That reminded me of John Bogle. He was an academic, and he would talk a lot about this stuff.

John Bogle: If everybody’s talking about a certain group or a certain type of stock, that’s a good time not to get with it, but to get against it. But just think about this for a minute.

When are you most optimistic? When do you really want to buy stocks? When the market’s at an all-time high, because stocks have done very well and it doesn’t look like they’re risky.

It looks like they’re a sure way to make profit. So you want to get into the market at the high.

When do you want to get out? You want to get out at the low. Why is the market low?

Everybody’s disturbed. They’re disappointed in the decline. They’re worried about the future. So your intuition drives you into the market at the highs and tries to drive you out of the market at the lows.

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If you can get that intuition or that emotion out of the equation, you can be a successful investor.

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PW: And that’s it. You listen to that, and that right there is just exactly what Evan said.

EB: And kudos for finding that clip on the fly.

PW: Isn’t that cool?

EB: I’m impressed.

PW: Evan’s like, looking at me. “Where’s that coming from?”

EB: “Where’d that voice come from?”

PW: No, but I loved it because it was exactly what you were saying. And that is such a fascinating article. I’ve got to have a copy of that because that is really good stuff. Thank you.

Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.