Deluge of market detail can provide too much information

BEFORE online trading, the iPhone and the internet superhighway, the most common question I was asked by investors was how to find the best stocks to buy.

Interestingly, despite information moving at lightning speed these days, I am still asked the same question today.

In the 1990s investors would share how their biggest challenge was information overload, given they were bombarded with newsletters, the media, brokers and other resources.

Little did they know the information tsunami was coming. As a consequence many investors now opt to invest in an Index Exchange Traded Fund to ease their confusion.

So how do you find the right stocks without having to trawl through loads of information?

My experience is that “less is more”. Some investors and traders mistakenly believe the more information they receive, the better their decisions will be, with many checking stock prices on their phone and buying and selling stocks multiple times a day. But this leads investors to make reactive decisions based on emotion rather than logic.

There are some simple strategies you can use to guide your way through the virtual mountain of information. The first thing I recommend all investors do is limit yourself to one or two trusted sources of information and only look at this on the weekend when you have time to absorb the information and focus on what is important.

This will ensure you make rational rather than kneejerk reactions.

So what’s next for the Australian sharemarket?

After showing signs of indecision over the past six weeks, which caused the All Ordinaries to move in a sideways pattern, the market has finally chosen a direction, as it moves up. While investors want certainty, this is not how the stock market works, as it runs on probability. And while the probability over the past couple of months has indicated the market has been weak, the pendulum has swung in the right direction, as the market is looking much stronger.

Over the past two weeks, I indicated that the All Ordinaries index would pick a direction soon and this week it did just that with a strong rise of more than 6 per cent and it is now well above the important resistance level about 5800 points.

Barring any negative news, I expect the current move up to continue over the next few weeks into mid-June and possibly late July. That said, we may see some short-term resistance around 6200 points over the next two weeks.

For those looking to enter the market, it would be wise to take a staged approach rather than a boots and all attitude. Dale Gillham is chief analyst at Wealth Within. wealthwithin.com.au