Odd lots

Online investment information used to be considered the domain of pennystock hustlers, boiler-room hacks and other assorted ne’er-do-wells. They walked the thinnest of lines separating honest appraisal of a rising stock from self-regarding hype for the benefit of insiders.

Indeed, during the Internet bust, the U.S. Securities and Exchange Commission prosecuted a teenager for a pump-and-dump scheme he was alleged to have orchestrated through various Web chat rooms. (While he surrendered some of his profits, he’s still in the business as a legal tout, who might say of a given stock that it “is going to the MOON and NOTHING will hold it back!!!!!!!!!!!!!!”)

The Internet can still be dangerous, but it’s changing. August publications like the New York Times have opened access to all their content. Unfortunately, the Wall Street Journal and the Financial Times are still laggards in the free market of information.

How does that affect an advisor? Like the Web, advisors can provide more information than a client can ever need – or want. But making it available isn’t just a competitive advantage. It’s a service: presenting the client with an informed set of options that illuminate past wisdom in light of current market conditions.

Let’s consider this in three ways. Information, like regulation, can be productive if it levels the playing field. (Of course, the opposite is true, too, information, like regulation, can be an impediment to effective action.) Advisors know this all too well: good regulation fosters client trust and confidence in financial markets; bad regulation gets in the way of serving client needs. The difficulty lies in identifying which is which.

Second, the onslaught of freely available information is rapidly transforming traditional media. Newspapers are closing, local TV stations are shutting down and even the CBC is struggling. The recession, of course, plays a role. But there is a deeper trend: authoritative information released only when it serves a publisher or a program director doesn’t even show in a game where simultaneity wins. That is where the Internet leads. And there are many willing to provide that simultaneity: to give information freely and immediately. It’s the same thing as the financial industry’s transition from captive agents to independent advisors to discount brokerages – from selling a product to providing a timely plan.

Third, there is hand-wringing – over the vetting of Internet content, or nostalgia. In markets, the past may yield an instructive lesson, but it is not predictive. Chicago School economists would argue that the diversity of investor intentions when buying a stock or a bond – it could be an executive exercising an option, a dividend investor looking for a tax-advantaged income, a pairs trader hedging a bet – precludes anything but a random guess. (Of course, many would rebut this with an argument about reversion to the mean.)

Still, the future – or rather, the discounted futures that markets ambivalently price – brings surprising results. Even without the imprimatur of a publisher, authentic experts do sally forth on the Internet. The only means to judge them is by the quality of their thought.

Their analysis – especially during the financial crisis – competes with filters newspapers, TV and radio used to offer. Are the filters necessary? Some of the economic and financial bloggers have the highest of pedigrees. But that’s not what counts. What matters is the exercise of laying their commentaries side by side. Does an objective truth emerge? Probably not. But a set of options often does.

And, as we oscillate between recession and depression, perspective has a scarcity value that’s worth paying for.