Coco Chanel is reputed to have said, “The best things in life are free. The second-best things are very, very expensive.”
As Sir Francis Bacon wrote in the 16th century, “knowledge itself is power.” As investors, we rely on information. But should information be expensive? As value investors, we don’t like expensive things. Indeed, it’s well known that transaction costs can have a major impact on portfolio returns.
It's probably true that one major difference between rich people and poor people is how they value information, so I listened carefully to an episode of the excellent The Knowledge Project podcast, where Bill Ackman (Trades, Portfolio) was being interviewed about his life.
When asked what his information intake was, he said, “Wall Street Journal, Financial Times, New York Times, The Economist, Fortune, Forbes, Grant’s Interest Rate Observer, Bloomberg and Bloomberg News… The Atlantic, New Yorker.”
Now, Ackman has an investment team and can hire outside experts. A Bloomberg terminal itself costs in the region of $25,000 a year. But his costs are paid for through fees to his investors.
Don’t get me wrong, all these sources are useful. Grant’s Interest Rate Observer, which I used to read when I worked in a financial institution, is excellent and costs $2,575 for two years. If your portfolio is valued at $100,000, then that alone is a 1.3% cost per year.
This got me thinking about my own information expense and what other people might be using. One interesting article I found recently, written by a former hedge fund analyst who is now a financial trainer, suggested $4,450 per year on tools was required for a retail investor to be effective. Your portfolio would need to be worth nearly $500,000 for that expense to be less than 1% per year, but even 1% in today's return environment is high.
This $4,450 was broken down into the following categories annually: $750 for data, $1,700 for news, $1,500 for analysis (including books, newsletters,and courses) and $500 for community (including memberships travelling to investor shows). Now, the article was self-serving to some extent because the author was trying to promote his book and courses, but, nonetheless, this got me thinking about my own sources of information and budget.
Let’s look at each category in turn.
Data
Obviously, GuruFocus is excellent for data. Time is money, and the time saved to get current and historical data makes it a very good investment.
Someone like Ackman, whose costs are covered by investor fees, likely spends a lot on various professional and sophisticated data feeds. But he and his team also carefully read EDGAR filings, such as 10Ks, 10Qs and 8Ks, as well as company annual reports and presentations. All those are freely available. Most developed world stock exchanges have equivalent freely available regulatory filings, certainly in the U.K. with the London Stock Exchange (LSE:LSEG, Financial), but also, I know for sure the Hong Kong Exchange (HKSE:00388, Financial), Canada, France, Norway and Australia (ASX:ASX, Financial), to name a few, have good and free financial reporting and disclosure.
GuruFocus offers a lot of economic data, and most developed countries have freely available statistical agencies where data is freely available. I find the Department of Energy’s Energy Information Administration to be very useful, as well as the St Louis Fed’s FRED economic database.
News
The former hedge fund analyst quoted the Financial Times and a couple of magazine subscriptions. In previous years, I subscribed to all of them and the Wall Street Journal. I found, however, that I didn’t need both. I found that the Wall Street Journal offers much better value for money compared to the Financial Times.
Also, if you don’t mind advertisements, Reuters.com is free. Reuters is a high-quality news agency. On a visit to the Foreign Correspondents Club in Hong Kong a few years ago, a popular hangout for expatriate journalists, I saw that from all journalists killed in warzones in the previous year, Reuters was the agency with the highest numbers. Bloomberg, on the other hand, was nowhere to be seen.
Mohamed El-Erian in his book, "When Markets Collide," talks about listening to the BBC World Service news on the radio. This is free and is also an excellent resource.
So, on a personal level, $1,700 for news is far too much. I could probably pay nothing for news if I didn’t subscribe to the Wall Street Journal, but economics reporters Greg Ip and Nick Timiraos are arguably worth the subscription price alone. The Wall Street Journal also has excellent Asia coverage and was reporting on the coronavirus in Wuhan as early as January 2020. Reuters also has some good columnists, who are former market analysts, covering commodity markets. BBC World Service is truly global in coverage and can be accessed online or via a daily podcast.
In part two, I will cover analysis and community.
