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Addressing the deficit - Ever-decreasing attention spans make markets even harder to forecast

10/02/2016

Andrew Evans

Andrew Evans

Fund Manager, Equity Value

Not only is humanity apparently demonstrating a growing preference for speed over patience, as we discussed in Time to think, but people’s attention spans are growing shorter and shorter. A major factor in this development is technology and there is now even a phrase to describe the act of simultaneously, if superficially, monitoring multiple sources of information – ‘continuous partial attention’. 

We appreciate there is some irony in having a pop at technology in an article you are almost certainly reading on a computer, tablet or phone – though it is not nearly so ironic as the second half of the Motherboard article from which we learned about continuous partial attention being rendered almost unreadable by the animated advertisement that ran alongside it … competing for our attention. 

Habits such as talking to someone with one eye on our mobile phones or pottering on our tablets in front of the television have now led researchers to examine ways of tracking our attentions spans online and thereby judging the best time to approach us with a new piece of information. “Whoever finally cracks the attention problem will likely wind up a very rich person,” predicts the Motherboard piece. 

In the world of investment, of course, where ADHD is arguably as much a part of landscape as, say, ETFs, IPOs and EBITDA, short attention spans are nothing new. Investors are constantly obsessing over the next ‘topic du jour’ – in other words, some new and apparently vital global development about which everyone is trying to become an expert and countless column inches are being written. 

You can no doubt think of plenty of examples of your own but the two we have picked out here particularly caught our attention because, although each was near the top of the investment agenda (at least for a little while) at different points in 2015, matters have in each instance grown more extreme since – and yet nobody really seems too bothered about them any more. 

First up is the Russian rouble, about which the market was getting very excited this time last year – and with some reason. As you can see from the chart below, the rouble/US dollar exchange rate had spiked hugely – as, it so happens, had the number of searches conducted on the subject on Google. But, as you can also see, the rouble is now even lower versus the dollar and yet investors have mostly moved on.

Source: Bloomberg, January 2016

It is a similar story with Petrobras, the scandal-hit Brazilian energy giant, which provoked a great deal of market chatter – and, again, searches on Google – in the first quarter of 2015. As you can see from the chart below, however, the company looks to be in even greater financial distress than it was back then – not least because of the oil price – and yet most investors have now lost interest in the story.

Source: Bloomberg, January 2016

The real point of all this is not that markets are fickle but that, for all those investors who still dream of forecasting the fortunes of countries and companies, that fickleness makes such a dream even less likely to become a reality. For not only must they correctly predict a particular scenario, they must also correctly predict when the market is going to choose to take an interest in that scenario. 

To call one half of that equation right may be regarded as improbable; to call both halves right looks all but impossible. That is why, as we said in Time to think, we prefer to stick solely to the fields of valuation and value-based investing and focus fully on those. It is a point well worth heeding by all – or at least by all those whose attention has not already wandered elsewhere …

 

Author

Andrew Evans

Andrew Evans

Fund Manager, Equity Value

I joined Schroders in 2015 as a member of the Value Investment team. Prior to joining Schroders I was responsible for the UK research process at Threadneedle. I began my investment career in 2001 at Dresdner Kleinwort as a Pan-European transport analyst. 

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