If you are like me, you have probably wondered how we ever survived before the Internet and cellphones.
I marvel at the time I am able to save with banking, finding directions and so many other ways.
There is no doubt the Internet makes our lives better, but I don’t think we can say the Internet has improved every aspect of our lives. There are dangers and pitfalls associated with the Internet.
Much of the time, the Internet has saved us we have given right back in the form of time wasters. Silly videos, mindless wandering and social media are a few examples.
Criminals, predators and trolls have learned to use the Internet to great effect. People tend to be both brave and cruel when they can hind behind a keyboard using fake name.
One of the most damaging aspects of the Internet is it has fooled many into thinking that a quick Google search can match a lifetime of experience of a true expert.
We are all guilty. We have all used the Internet to pretend to be doctors, political scientists, theologians and economists.
I laugh a little when I hear people say they saw something on the Internet and then share that knowledge with the confidence of a seasoned professional. I’m sure I have done it too.
I see this a lot in the world of finance. The Internet is full of investment advice. Much of this advice comes in the form of a top 10 list of best stocks or mutual funds. This advice is designed to satisfy a person who needs the quickest answer possible.
This can be most dangerous when it comes to risk.
Most investment advice on the Internet is based on performance. It is very easy to throw together a list of investments that have done well. But rarely do these lists discuss risk.
An investment professional once said that if the wind blows hard enough, even an ostrich can fly. It is only when the markets are down that you see who has done a good job managing risk.
You can only truly gauge investment performance if you are aware of the risk a certain investment is taking.
It is important to become familiar with statistical measures like standard deviation and the Sharpe Ratio. These measures will reveal how an investment has performed relative to risk.
Proper diversification is another way Internet warriors botch their investments.
Too often, people think diversification is simply owning multiple investments. Being properly diversified is much more complicated.
Many distinct investments act in a similar manner during varying economic conditions.
It is vital to be able to see the larger picture of an investment portfolio and know how these investments will act together. Being diversified is more like weaving a web than carrying eggs in baskets.
I don’t mean to discourage people from doing research. The Internet can be empowering and even keep experts honest.
We just need to realize there are limits. These limits should bring a sense of humility.